Citi Lowers Estimates On Alcoa Ahead Of Earnings

Citi is lowering its 1Q estimate on Alcoa AA to $0.25 vs consensus of $0.27 due to equity dilution and cost headwinds from a weaker US dollar. With AA shares closing at a 2-year high and climbing 18% YTD, Citi is cautious heading into the quarter. AA is scheduled to announce earnings after the close Monday, April 11th. As previously disclosed, the company is seeing input cost escalation from caustic soda use in alumina refining, pitch/coke consumed in smelting, and a general increase in power costs. The weaker USD likely shaved $0.01/sh off the quarter. As well, AA issued $600 mln of stock during the quarter to help fund its pension plan and plans to make an additional $300 mln cash contribution during 2011. Citi's preferred US Metals & Mining stock is Cliffs Natural Resources CLF because of its iron ore and met coal exposure, growth profile post Consolidated Thompson purchase, free cash flow generation, and discounted valuation. Citi has a $17 PT and Hold rating on AA AA closed Wednesday at $18.13