Bank of America Merrill Lynch started coverage of "new" Alcoa (AA) with an Underperform rating, while Goldman Sachs initiated coverage of Arconic (ARNC), the company spun off by Alcoa, with a Sell rating. Alcoa retained its upstream businesses, including aluminum smelting and alumina refining, while Arconic consists of Alcoa's former downstream businesses.

SELL ALCOA: Bank of America Merrill Lynch analyst Timna Tanners started coverage of Alcoa with an Underperform, the firm's equivalent of a sell rating, following the completion of its break-up into two publicly traded companies. Noting that China has added about 17M tons of aluminum production capacity since 2010, bringing total world production capacity to 58M tons, Tanners says that negative changes in Chinese supply/demand dynamics can "strain the market." Moreover, any excess cash that Alcoa generates will probably be used to fund its pension obligations, while Alcoa could be hurt by slowing demand from the aerospace and auto sectors, warned the analyst. Concluding that Alcoa lacks catalysts, Tanners set a $22 price target on the stock.

SELL ARCONIC: Noting that Arconic generates 30% of its revenue from the commercial aerospace original equipment market, Goldman analyst Andrew Quail says that the market's demand is slowing, while its supplies are at record levels. Meanwhile, Goldman's auto analysts expect U.S. auto sales to begin declining, and truck sales "remain pressured," Quail reported. Arconic's debt levels are "relatively high," added the analyst, who set a $15 price target on the shares.

PRICE ACTION: In late morning trading, Alcoa slipped 0.2% to $22.95, while Arconic slumped 2.8% to $18.39.