Alcoa Coverage Resumed, Consol Energy Downgraded At Citigroup

In a note to clients on Monday, Brian Yu of Citigroup downgraded Consol Energy, Inc. (NYSE: CNX) to Neutral from Buy with a $41 price target due to recent share appreciations. At the same time, the analyst resumed coverage of Alcoa Inc (NYSE: AA) with a Buy rating and $21 price target.

"Alcoa is one of the few companies in our coverage that is expected to generate positive free cash, yielding 3.9 percent in 2015 and 5.0 percent in 2016," Yu wrote. On the other hand, Yu estimates Consol Energy to generate a negative free cash flow of $310 million in 2014, negative $15 million in 2015 which will turn positive to $54 million only in 2016.

As such, investors may find better returns in Alcoa over Consol Energy.

The analyst adds that recovering aluminum prices helped Alcoa improve its EBITDA in 2014 by an estimated $0.9 billion. In addition, further earnings growth over the coming years are expected as aluminum prices are projected to rebound to $1.00 per pound in 2017.

Improvements in aluminum prices will stem from financing deals, production curtailments and underlying demand. The analyst is projecting downstream profits to continue growing at a 6 percent to 7 percent pace through 2016.