Alcoa earnings may have beaten Wall Street forecasts for the latest quarter, but that isn't enough to burnish the stock price as China ramps up aluminum supply, one analyst says.
On Monday, Alcoa CEO Klaus Kleinfeld told CNBC, "I'm relatively optimistic that 2013 is going to be better than 2012. So for us, we continue to project 7 percent demand growth in aluminum."
He cited strength in its aerospace, automotive, building, and construction businesses, as well as a stable China.
But demand isn't really the issue, Aldo Mazzaferro, senior steel, metals, and mining analyst at Macquarie Securities, told CNBC.
(Read More: Earnings Season Kicks Off, Slow Growth Expected)
Calling the downstream operations "a real gem," the analyst said, the business is "a consumer of aluminum and other metals, and it sells into growing markets where it has good margins and good unit growth and good pricing power."
While that has helped Alcoa overcome weaker aluminum pricing, growing supply out of China will be an issue for the company and the stock price, the analyst said.
"We continue to have this longer-term view that Chinese aluminum production is ultimately going to cause a reduction in cost and keep pressure on pricing," he said.
Moreover, Michael Yoshikami, founder and CEO, Destination Wealth Management, told CNBC that Alcoa's "revenue numbers are not coming in weak because of sales, they're coming in weak because of the price of aluminum."
Although Alcoa has made an effort to shift its focus from the upstream business, where earnings are exposed to fluctuations in metal prices, "as good as it's going in the downstream businesses, the earnings are just not enough to spark any excitement in the shares," Mazzaferro said.
With the stock trading at about 17 times earnings, Mazzaferro said he has an issue with valuation given the concerns about earnings.
Other analysts also cut their price targets on the stock following its earnings announcement. Nomura and UBS, which both rate the stock a "neutral," cut their price targets by $1 to $8 and $9, respectively.
The Macquarie analyst is also worried about the potential for a credit rating downgrade. "It's a little bit of an issue," he said, but added, "they still have a lot of levers to pull before they have to dilute the earnings on the balance sheet."
Trouble for Materials?
More broadly, the materials sector may be in for a difficult quarter in terms of earnings surprises, according to research from Bank of America/Merrill Lynch.
(Read More: Earnings Season Could Bring 'April Anxiety')
"Historically, we have found that sectors with strong earnings revision, sales revision, and management guidance ratios (the number of upward to downward guidance announcements) have been more likely to have a greater amount of earnings beats than misses," analysts wrote in a note.
When ranking the 10 S&P sectors by these measures, BofA found the materials and telecommunications sectors look least attractive this earnings season, while the health care and technology sectors come out on top.
—By CNBC's Justin Menza
Disclosures were not immediately available