Why This Arconic Analyst Is Turning Bearish

Arconic Corp (NYSE: ARNC), the Pittsburgh-headquartered aluminum maker with a strong position in Europe may have some near-term demand issues, which lead analysts at Goldman Sachs on Tuesday to issue a Sell note on the stock.

The Goldman Analyst: Emily Chieng downgraded Arconic from a Neutral to a Bell rating and lowered the price target from $23 to $21.

Chieng said that despite Arconic's recent "deck clearing" event during its fourth-quarter earnings call when management outlined a 2023 EBITDA guidance range and deferred growth projects, Goldman still saw downside risk to consensus EBITDA forecasts in 2024 and 2025.

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The analyst cited the risk to demand in the near term, particularly in building and construction markets in Europe, as well as operational execution and the delayed realization of EBITDA uplift from growth projects.

Goldman Sachs' concerns in the European market highlighted concerns over demand in various segments, including ground transportation, industrial products, building and construction, in which the company has seen demand down 40% year-over-year.

Another concern Chieng mentioned was the changing market dynamics and operational execution misses as drivers for the deferral of growth projects, with Arconic management now focusing on cost reduction rather than capacity addition.

The company issued a mixed report last week, beating earnings by 9.64%, while missing on revenues by 2.51%. It also issued full-year 2023 guidance below consensus estimates.

While Goldman expected an improvement in EBITDA in 2024, it was taking a conservative view due to uncertainty in the macroeconomic outlook and the company's recent track record of operational execution.

ARNC price action: Shares of Arconic are trading up 0.23% to 22.19, according to data from Benzinga Pro.

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