Alcoa's Mixed Report: How Analysts Are Reacting

Alcoa Inc AA reported its second quarter results after Wednesday's closing bell. The company reported a mix quarter with earnings per share excluding special items of $0.18 missing the consensus estimate of $0.23 while revenue of $5.897 billion exceeded the $5.82 billion analysts were expecting.

Here is a summary of what some of Wall Street's top analysts are saying.

Sterne Agee CRT: Remain On The Sidelines

Josh Sullivan of Sterne Agee CRT commented in a note that expectations were "low" heading into the earnings print and Alcoa's earnings still fell short of expectations.

Sullivan noted that declining regional premiums and LME pricing contributed to the miss. However, looking forward, the company doubled its Aluminum global surplus estimate to 760,000 metric tons. The analyst noted this was largely driven by the revision of the company's capacity curtailment estimates as unprofitable Chinese operations remain open.

Related Link: Are Alcoa's Earnings Really A Bellwether For The S&P 500?

"The Alumina surplus estimate was tightened but remains well into surplus territory," Sullivan said. "We can appreciate the defense that the Chinese fake semi trade runs against official Chinese policy; however, until formal action is taken, risks will continue for Chinese capacity to leak into global markets."

Nevertheless, the analyst recommended investors remain on the sidelines until the commodity markets find a bottom.

Shares remain Neutral rated with an unchanged $12 price target.

Stifel: Investors Should Take A Long-Term View

Paul Massoud of Stifel commented in a note that Alcoa's earnings were impacted by declining commodity prices, but the company was able to partially mitigate the impact through continued cost controls and high cost curtailments.

Looking forward, the analyst suggested that increasing aluminum demand from the auto industry creates a "transforming secular story" that is still in its early stages. Alcoa noted that it expects revenue from the industry to grow from $750 million in 2014 to $1.1 billion in 2015 and $1.6 billion in 2016.

The growing demand from the auto industry will "tighten" the overcapacity in the North American mark and reverse the trend of narrowing margins seen in previous quarters.

Shares remain Buy rated with an unchanged $18 price target.

Morgan Stanley: Downside Risk In Q3

Paretosh Misra of Morgan Stanley commented in a note that Alcoa's third quarter earnings per share estimate of $0.12 looks "achievable" but the Street's consensus estimate of $0.20 appears to be too high which may add pressure on shares.

Misra also noted that aluminum prices, including regional premiums, are trading near six-year lows. As such, upstream performance should be near a trough at current prices that could help shift focus to the higher-multiple earnings from Alcoa's downstream portfolio. The analyst added that Alcoa's downstream portfolio could be boosted by recent acquisitions that target the aerospace sector along with new capacity in the automotive end market.

The analyst concluded that Alcoa's shares traded near a 30x P/E (next twelve months basis) basis in 2012-2013 when annual earnings per share averaged near $0.30. As such, a large multiple expansion from current levels is "possible" as investors start factoring trough earnings.

Shares remain Overweight rated with an unchanged $16 price target.