Lower aluminum prices, higher energy costs and a weak U.S. dollar contributed to disappointing third quarter results from Alcoa Inc. (NYSE:AA), but the company did announce that its board approved a share buyback of as much as 25% of outstanding shares. The previous amount was 10%.
Alcoa shares have fallen off nearly 20% since the middle of July, when takeover speculation surrounded it and rival Alcan Inc. (NYSE:AL). But Alcan got a buyer in Rio Tinto (RTP) (Alcoa lost that battle) and Alcoa remains alone.
Alcoa shares rallied more than 3.5% ahead of the results, which were reported after markets closed on Tuesday. But the market may be disappointed by what Alcoa had to say.
UBS analyst Brian MacArthur was. He lowered his price target by US$3 to US$47, but maintained a “buy” rating on the shares, partly because of the positive long-term view for aluminum prices at UBS.
“Given the shares’ inclusion in the DJIA and large liquidity, we believe Alcoa should trade at a premium to its mining peers,” Mr. MacArthur said in a research note.
His revised 2008 earnings per share forecast is US$3.64.
RBC Capital Markets analyst H. Fraser Phillips also cut his earnings estimate by US8¢ to US$2.23. His target price remains at US$40.
While acknowledging that the probability of Alcoa being acquired is low, he thinks the stock could be worth US$51 based on previous transactions.
Finally, Deutsche Bank maintained its “hold” recommendation and US$39 price target.
“We still think there are more interesting opportunities across the industry as we remain concerned with Alcoa’s integration and free cash clow story and growing supply of aluminum globally,” the firm said in a note.