Alcoa will suffer from weaker global growth, according to Morgan Stanley. The firm downgraded shares of the aluminum producer to underweight from equal weight Wednesday. It also lowered its price target on the stock to $33 per share from $43. Morgan Stanley’s new forecast implies about 5% downside from the stock’s $34.91 close on Wednesday. Shares of Alcoa have pulled back more than 23% from the start of the year. Alcoa is the eighth-largest global producer of aluminum. AA YTD mountain Alcoa stock has slipped 23.2% from the start of the year. Morgan Stanley analyst Carlos De Alba said a slight uptick in China’s services sector isn’t enough to ignore sluggish growth, while a stronger dollar as well as a fairer valuation for the company will weigh on the stock. “Mining equities may continue their recent move higher on sentiment around China stimulus for a bit longer, but we don’t think the rally is sustainable,” De Alba said. Despite being down year to date, Alcoa shares are up 10% this month. That said, “the global growth outlook remains challenging and will weigh on commodity demand and mining equities.” De Alba added that growth in American metals and mining will only increase at a 2.9% clip in 2023 and 4.9% in 2024 while the dollar strengthens, which “should pressure mining equities’ relative performance given its traditional negative correlation to the USD.” “We would like to see the equities trade at more attractive valuations and/or an acceleration in global growth before turning more optimistic again,” the analyst noted. Still, the analyst said names in the mining space could benefit as the U.S. moves further in decarbonization efforts and toward renewable energy. — CNBC’s Michael Bloom contributed to this report.
