Deutsche Bank cuts Alcoa to "sell" on weak aluminum prices
Oct 2 (Reuters) - Deutsche Bank lowered its rating on Alcoa Inc's stock to "sell," saying lower aluminum prices over the last two quarters does not bode well for the company's primary metals business that accounts for more than 40 percent of its revenue.
While a weaker Australian dollar and Brazilian real could offset lower aluminum prices and benefit third-quarter results, the fourth quarter will not get much help from foreign exchange movements, Deutsche Bank analysts said.
Shares of the largest U.S. aluminum producer, which is expected to report third-quarter results on Oct. 8, were down about 2 percent on the New York Stock Exchange on Wednesday.
Deutsche Bank analysts, led by Jorge Beristain, head of Americas metals and mining equity research at the brokerage, also cut their price target on Alcoa's shares by 39 percent to $5.5.
Aluminum prices have nearly halved since their peak of $3,380 per tonne in July 2008. Benchmark three-month London Metal Exchange aluminum dropped nearly 14 percent in the first six months of 2013 due to excess inventories.
In September, BNP Paribas lowered its 2014 aluminum price forecast by $135 to $1,865 per tonne.
Thomson Reuters StarMine predicts that Alcoa's third-quarter profit will miss Wall Street estimates by 6.7 percent and fourth-quarter earnings will miss by 31 percent.
Analysts on average have reduced their earnings estimates for the third quarter by 31 percent in the last three months.
The company posted a net loss in the second quarter, hurt by restructuring costs related to plant closures, but posted a larger-than-expected adjusted profit thanks to a strong performance from its high-margin engineered products business.
The stock has slipped 6 percent this year but still trades at 27 times forward 12-month earnings - a big premium to the sector median of 7.21.
(Reporting by Sayantani Ghosh and Saumyadeb Chakrabarty in Bangalore; Editing by Don Sebastian)