Shares of Alcoa (AA) are sliding after Bank of America/Merrill Lynch downgraded shares to Neutral from Buy, saying that elements of the firm’s buy thesis have worsened.

WHAT’S NEW: Despite alumina prices falling by 1/3 since last June, a weakening outlook for aerospace builds and a recently disclosed high pension liability, Alcoa shares have been “surprisingly resilient,” said BofA Merrill analyst Timna Tanners in a note to investors this morning. Tanners said she remains confident the aerospace cycle will support Alcoa’s specialty metals portfolio and the eventual isothermal forge ramp up. However, the analyst, who lowered her price target on Alcoa shares to $10.50 from $12, now sees Alcoa as a “show me story” as other elements of the thesis have weakened. With U.S. heavy duty truck orders falling nearly 20% year-over-year in January, the analyst sees downside risks to Alcoa’s Transportation & Construction Solutions segment. The analyst also cautioned that upside in aluminum and alumina prices are likely capped with continued oversupply from China.

WHAT’S NOTABLE: In late January, Paul Singer’s Elliott Associates boosted its activist stake in Alcoa to 7.4% from the 6.4% position the hedge fund reported on November 23. Elliott reiterated its belief that the spin-off transaction recently announced by Alcoa “will create value substantially above the current share price.” The hedge fund said it seeks to “engage in a constructive dialogue” with the company’s board and management regarding the transaction “as well as a number of other additional available opportunities to maximize shareholder value.” Looking to strengthen its board ahead of the planned separation of its businesses, Alcoa announced in early February, that it will expand its board by three members, which was met with support from Elliott Management.

PRICE ACTION: Shares of Alcoa are down 19c, or 2%, to $9.43 in midday trading.