Dahlman Rose lowers price target for Alcoa

Investment bank Dahlman Rose said Tuesday it had lowered its price target on major US aluminum producer Alcoa to $13 from $14.65/share to reflect lower 2013 LME aluminum price estimates.

Dahlman lowered its LME aluminum price estimate for 2012 to $0.91/lb from $1/lb and for 2013 to $1/lb from $1.10/lb "in response to recent macroeconomic developments and price action," the bank said.

Dahlman also lowered Alcoa's 2013 earnings per share estimate to 70 cents/share from 95 cents/share, but said the company's productivity gains would help offset these declines.

"Management has successfully implemented efficiency and productivity gains across each segments, buoying performance during a period of depressed LME prices," Dahlman Rose said. "Though we realize the limitations inherent in cost cutting, such initiatives will serve the company well as pricing stabilizes."

Alcoa's midstream and downstream segments continue to drive performance, the bank said, pointing to strong aerospace and automotive demand, which helped Alcoa see a Q2 adjusted EPS of 6 cents/share. Last week the investment bank lowered its forecast for Alcoa's EPS to 3 cents/share because of the depressed LME prices, but said variance from its estimate was on lower costs in the primary segments and higher rolled products shipments.

Dahlman said the uncertainty surrounding the Aluminum Bahrain civil suit and its potential liability could continue to pressure shares. Alba filed a civil suit in the US district court against Victor Dahdaleh, Alcoa, and a group of other related individual and corporate defendants in February 2008 over bribery allegations.

The bank initiated a Q3 2012 EPS estimate of 0 cents/share and lowered its full-year 2012 estimate to 20 cents/share from 50 cents/share, while still maintaining its "buy" recommendation.