Analysts Are Bearish on CENX after Its 3Q17 Earnings

Key drivers

Recently, alumina prices have risen and the alumina-to-aluminum ratio reached its all-time high. While higher alumina prices are positive for companies like Rio Tinto (RIO) and Alcoa (AA) because they have captive alumina operations, Century Aluminum’s earnings are impacted negatively. Century Aluminum buys all of its alumina requirements from outside parties. It’s also impacted when aluminum prices don’t rise in proportion with alumina prices (XME). The recent weakness in Century Aluminum could mainly be attributed to higher alumina prices.

3Q17 earnings

Century Aluminum (CENX) released its 3Q17 earnings on October 26. The company reported revenues of $401 million in 3Q17—compared to $389 in 2Q17 and $334 million in 3Q16. Century Aluminum generated an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $48 million in 3Q17. It posted an adjusted EBITDA of $34 million in 2Q17 and -$5 million in 3Q16.

Century Aluminum received a “buy” or some equivalent rating from one analyst. The remaining four analysts polled by Thomson Reuters on November 7 rated the stock as a “hold.” According to consensus estimates compiled by Thomson Reuters, Century Aluminum has a mean one-year target price of $16.7, which represents 12.8% upside over its closing price on November 7. In contrast, the stock carried a one-year target price of $18.75 on October 25—one day before its earnings release.

JPMorgan Chase downgraded Century Aluminum to “neutral” from “overweight” after its 3Q17 earnings release and lowered its target price from $22 to $14.5. BMO also lowered Century Aluminum’s target price from $18 to $16.