Downgrades of Alcoa stock bring headwinds

J.P. Morgan Analyst Downgrades Alcoa Shares

On Friday, J.P. Morgan analyst Bill Peterson downgraded Alcoa shares from Buy to Hold, lowering the price target to $36 a share from $54. This downgrade has resulted in a 2.3% decline in Alcoa stock, which is currently trading at $35.86.

Concerns over Aluminum Base Metal

Peterson’s cautious stance on the aluminum base metal is driven by planned China restarts and a lull in summertime demand. China’s significant role in global aluminum production, accounting for nearly 60% of it, means that any changes in output there will have a ripple effect on aluminum prices worldwide.

Declining Prices and Its Impact

Aluminum prices have already experienced a decline, with benchmark prices falling approximately 10% over the past year and about 20% from January highs. The stock market tends to view falling commodity prices unfavorably, and Alcoa stock has suffered a more than 35% drop since aluminum reached its 2023 high earlier this year.

Multiple Downgrades Reflect Concern

The downgrade by Peterson comes as the second one this week, following Wolfe Research’s downgrade of Alcoa to Sell from Hold with a $25 price target. Morgan Stanley also downgraded Alcoa stock to Sell from Hold in late June with a $33 price target. These repeated downgrades signal mounting concerns surrounding the company’s prospects.

Analyst Ratings and Target Price

Currently, approximately 47% of analysts covering Alcoa stock rate it as Buy, slightly below the average Buy-rating ratio of about 55% for stocks in the S&P 500. Around 20% of analysts now rate Alcoa shares as Sell, while the average Sell-rating ratio for S&P stocks is less than 10%. The average analyst price target for Alcoa sits at about $42 a share, down from the end of the first quarter’s average of about $55 a share.

Performance and Outlook

As of Friday’s trading, Alcoa stock has declined roughly 19% year-to-date and about 9% over the past three months. These figures highlight the challenges that Alcoa is currently facing in the market.