Alcoa's Q3 Disappoints Analysts

As expected, the analyst response to Alcoa Inc.'s (AA) third-quarter earnings miss is largely negative. But they continue to see some positive developments in the future.

RBC Capital Markets analyst Fraser Phillips cut his price target on Alcoa shares 35% to C$24.00 based on a lower realized price for aluminum in the current quarter (the company warned about price weakness in its Q3 report). He expects aluminum shares to remain depressed through this year, but thinks they could spike again next year.

"Over the next 12-24 months, we believe that China will become a net importer of [aluminum], driving significant increases in [aluminum] pricing," he wrote in a note. He maintained a "sector perform" rating.

Analyst John Redstone of Desjardins Securities also predicted that the aluminum market will improve, forecasting average prices of $1.30 a pound in both 2008 and 2009 (it is currently down at around $1.01). He lowered his 2008 earnings estimate on Alcoa by more than a third, but maintained a "buy" rating and $28.30-a-share target, noting that the company is trading below its replacement value and book value.

Tony Robson of BMO Capital Markets is less confident. He put the company's earnings forecasts and target price under review, noting the recent drop in aluminum prices should hit the next two quarters because of lags in price realizations.

"Alcoa may report marginal profits or losses for the next two quarters unless the metal price rebounds quickly," he wrote.