Alcoa Inc (NYSE:AA), the Dow’s one and only aluminum producer, is scheduled to report 2nd quarter 2013 financial results after the bell on Monday, July 8, 2013.

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The stock is down 10 percent year-to-date and about 10 percent over the last 12 months, under-performing the S&P 500 by about 20 percent as a continued supply of aluminium out of China has kept pressure on the price.  This has also kept consistent downward pressure on earnings per share (EPS) and revenue estimates for Alcoa Inc (NYSE:AA).

Moody’s Downgraded

On May 29, Moody’s downgraded the company’s credit rating to Ba1, which is considered junk status, and adjusted the outlook to stable. The main driver for the downgrade was weak aluminium prices.

Moody’s cited “continued headwinds pressuring fundamentals in the aluminum industry and aluminum prices” that would make it difficult for Alcoa Inc (NYSE:AA) to reduce its leverage in 2013 and 2014. Moody’s added, “Currently LME aluminum prices are ranging in the low $0.80/lb and there appears little catalyst for upward price movement.”

Goldman Sachs Rates Alcoa as Neutral

In the recent report, Goldman Sachs  has marked to market their second quarter estimates for Alcoa Inc (NYSE:AA) to reflect the actual realized LME aluminum price of $0.84/lb compared to GS estimate of $0.91, which  reduces  2Q13 estimate for AA to $0.05 from $0.13. They have also lower  full year 2013 estimate to $0.35 from $0.42 and maintained their 6-mo P/E-, EV/EBITDA- and DCF-based target price at $8 and rate Alcoa Inc (NYSE:AA) as Neutral.

Goldman Sachs Concerns for Alcoa

Aluminum price has continued to disappoint and see further downside risk. They believe that AA will need to accelerate its plans to idle 460K tons of high-cost smelting capacity announced recently, despite the political, labor, and environmental pressures that may arise from plant closures.

AA’s midstream and downstream businesses are on a strong footing, generating two-thirds of its EBITDA in 2012, and its investments in the aerospace and automotive sectors should enhance margins. However, analysts think timely execution of the company’s announced strategy to restructure its upstream businesses is required, while also continuing to seek opportunities like Ma’aden to move down the global cost curve.

Although they maintain a Neutral rating, Goldman Sachs sese some near-term risk if AA is downgraded from IG to HY by another credit rating agency after Moody’s recent downgrade, as news articles have speculated that this could increase the likelihood of removal of AA from the Dow 30, potentially triggering a sell-off by index funds.

Goldman Sachs 2Q Conference Call Expectation

For the 2Q conference call, investors’ focus will likely be on the balance sheet and cash burn – including a possible equity issuance to shore up the balance sheet – in addition to portfolio restructuring, market outlook, and growth projects like aluminum-lithium and auto aluminum rolling facility.