Alcoa stock falls on 4Q earnings

Aluminum producer's shares sink more than 6 percent; UBS downgrades company.

January 10, 2006: 11:00 AM EST


NEW YORK (Reuters) - Shares of Alcoa Inc. tumbled Tuesday after the world's largest aluminum producer posted lower fourth-quarter profit on a raft of one-time items that caught some investors by surprise.

Shares of Alcoa (down $1.72 to $28.85, Research), the first component of the Dow Jones industrial average to report results this quarter, were down more than 6 percent in morning trading.


 

UBS downgraded the stock on valuation concerns, though Merrill Lynch said any weakness in the shares was a buying opportunity.

On Monday, Alcoa reported a 16 percent decline in quarterly profit, weighed down by a number of items, including hurricane-related production cuts, unplanned outages and maintenance and labor issues in Australia.

Investors worried that Alcoa's cost pressures were not lessening, as evidenced by the fact that revenue increased 12 percent in the quarter even as profits fell.

UBS raised its price target on Alcoa shares to $34.50 from $33 but cut its rating in the stock to "neutral" from "buy," given the implied return on the shares.

But Merrill Lynch called the results "commendable" in light of cost pressures, saying that excluding one-time items, the company missed the average Wall Street profit forecast by just 2 cents a share. But it acknowledged that the stock would sell off.

"We believe this will create a buying opportunity because any selloff does not take into account the significant cash generation capacity or growth prospects of the company," analyst Daniel Roling said in a note.