Alcoa Inc. (AA) is facing lower aluminum prices and higher input costs. In our view, Alcoa’s near- to medium-term profitability is likely to come under pressure from rising energy and caustic-soda costs.
We also believe that the depreciation of the U.S. dollar is likely to translate into higher costs for Alcoa’s Australian, Canadian and European operations. Additionally, higher restructuring charges are pressuring margins of the company. Alcoa’s share price has declined consistently in the last couple of months after it reported first quarter 2010 results.
We believe Alcoa’s weak performance will continue for the rest of 2010. We downgrade the stock to Underperform from our previous Neutral recommendation.Zacks Investment Research
