BMO Sees Challenging Times Ahead For Alcoa Due To Pricing Pressure

BMO Capital Markets issued a report on Alcoa Inc (NYSE: AA) calling the first quarter a good start for the company, but sees a challenging outlook ahead. BMO Capital Markets rates Alcoa as Market perform with a $15 price target.

Analysts David Gagliano and Matt Cartoceti wrote, "Results benefited from the early quarter strength in pricing, with the alumina and primary aluminum segments exceeding our estimates. This was offset by weaker-than-expected results in the mid-stream rolled-products segment, while the engineered solutions segment was in line."

Related Link: Alcoa Posts Upbeat Q1 Earnings, But Revenue Misses Views

BMO Capital Markets see three challenges ahead for Alcoa:

1. Upstream pricing Pressure: Regional premiums are falling for Alcoa.
2. Downstream Weakness: Quarterly results in the GRP segment fell short in the first quarter, with second quarter outlook also being below previous expectations.
3. Valuation: Alcoa shares are near fully valued trading at 7.2x 2015 and 6.3x 2016 EBITDA estimates.

Shares of Alcoa recently traded at $12.99, down 4.9 percent.