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Here's Why Alcoa Dropped as Much as 10.3% Today

Maxx Chatsko, The Motley Fool

What happened

Shares of aluminum leader Alcoa (NYSE: AA) fell over 10% today after Citigroup lowered its price target from $53 per share to just $33 per share. The stock hasn't seen $53 per share since the beginning of the summer, but today's downgrade sent shares tumbling to a 52-week low -- of roughly $33 per share.

As of 3:16 p.m. EST, the stock had settled to a 7.6% loss. 

So what

The downgrade at Citigroup is actually a little surprising. Alcoa just turned in a strong third-quarter 2018 performance, announced a new $200 million share buyback program, raised the lower end of its adjusted EBITDA guidance for the year, and said that tariffs on aluminum are actually helping the business more than hurting it. Management said it expects demand to exceed supply globally for alumina and aluminum in 2018, which should drive prices higher entering 2019. 

A declining stock chart on a chalkboard.

Image source: Getty Images.

In fact, the rosy near-term expectations from Alcoa led other Wall Street analysts to become even more bullish on the stock. Curt Woodworth of Credit Suisse called the stock cheap and said he expects analysts across the board to raise their profit estimates for the business. Meanwhile, Michael Gambardella of JP Morgan raised his price target on the stock to $79 per share. 

Now what

The thing for individual investors to remember on days like today is that none of this really matters at all. The reality is that Wall Street estimates get a lot of fanfare when announced, but they tend to decay in value and meaning quickly. In other words, a few months from now, it won't matter what a bunch of spreadsheet models in Manhattan predicted back in November 2018. What will matter is how well Alcoa -- the real-world business -- responds to challenges and opportunities in its path. Third-quarter 2018 operating results hint that the business is on the right track; now it just needs to string together several more quarters of execution to keep removing doubt in the minds of investors.

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Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.