Freeport McMoRan Stock Forecast: Freeport-McMoRan Inc. [NYSE: FCX] is an international mining company with headquarters in Phoenix, Arizona. The company focusses on the exploration and operation of copper and gold mines located primarily in the United States, Peru, Chile, Indonesia and Congo.
FCX operates large, geographically diverse mines including Grasberg minerals district in Indonesia, one of the world’s largest copper and gold deposits. It also operates Morenci minerals district in North America and the Cerro Verde operation in South America.
Other commodities to which Freeport has exposure include silver, cobalt hydroxide, oil, gas and molybdenum. But FCX is primarily a copper miner (copper accounts for about 75% of its top-line revenue).
And because gold is often found alongside copper, it makes it one of the largest miners of the yellow metal as well. FCX is the largest publicly traded copper producer in the US.
Trivia: Freeport-McMoRan Inc. was created in 1981 through the merger of Freeport Minerals, formerly known as Texas Freeport Sulphur Company and McMoRan Oil & Gas Company. .
Is Freeport-McMoRan a Buy?
Freeport-McMoRan Inc [NYSE: FCX] issued its quarterly earnings results in the fourth week of October.
The natural resource company reported a loss in its third quarter as falling copper production and prices forced it to miss revenue estimates.
The copper mining giant reported a loss of $131 million, or $0.09 per share compared with a profit of $556 million, or $0.38 a share a year ago.
Revenues fell to $3.31 billion from $4.91 billion a year earlier, marking a decline of 32.6% on a year-over-year basis. Analysts had expected $3.53 billion of revenue in the quarter.
FCX Financial Facts
FCX reported $0.01EPS for the quarter, in line with analysts’ estimates. The company had posted $0.35 EPS in the same quarter last year. The company had a positive return on equity of 0.91% and a negative net margin of 0.22%.
The company has a current ratio of 2.47 and a debt-to-equity ratio of 0.57. Freeport-McMoRan has a market cap of $15.97 billion and a beta of 2.44. The mining firm has a 12-month low of $8.43 and a high of $14.68.
For the third quarter, consolidated sales from mines totaled 795 million pounds of copper, 243 thousand ounces of gold and 22 million pounds of molybdenum.
Why Freeport Has Fallen
The price of copper fell 6% to $2.62 per pound from $2.80 in the same quarter the previous year. Average realized price per ounce for gold on the other hand surged 25% to $1,487 from $1,191 in the same quarter last year. Average realized price per pound for molybdenum went up 4% year over year to $12.89.
The mining company expects consolidated sales volumes to be 3.3 billion pounds of copper, 92 million pounds of molybdenum and 874,000 ounces of gold for the year 2019.
For 2019, the company estimates operating cash flows of $1.6 billion. Its operating cash flows were $224 million in the latest quarter. The company estimates the capital expenditures to be around $2.6 billion, with the bulk ($1.6 billion) going towards development of mining projects in Grasberg, Indonesia and the Lone Star copper leach project.
The mining giant was able to limit its losses despite missing copper sales estimates.
How Analysts Rate Freeport McMoRan
FCX shares have been in the eyes of several analysts. Bank of America upgraded Freeport-McMoRan from a “neutral” rating to a “buy” rating while raising the price target from $10 to $14.
According to Bank of America’s analysts, FCX is in a period of ‘transition’ as its underground mining operation at the strategic Grasberg mine gathers steam. It is expected that this strategic asset will be a key contributor to the company’s bottom line as it readies itself for a full-capacity copper and gold production.
Also, Bank of America noted that with a successful underground and block cave mining transition, the copper mining company will be able to achieve higher productions, lower its operating costs and normalize its capital expenditure.
Weakness in copper prices has brewed trouble for the company but it is expected to fortify with rising demands and labor disruptions in Peru and Chile.
Morgan Stanley reiterated an “overweight” rating and set a $13.30 target price on shares of the company while UBS Group upgraded the miner from a “neutral” rating to a “buy” rating and lowered their target price for the company from $13.00 to $12.00. Exane BNP Paribas has set an “outperform” rating on the stock.
All in all, FCX is in a period of transition right now, and investing in stocks when they are showing signs of weakness makes little investment sense – at least at first glance.
What Are The Risks of Buying Freeport McMoran?
The major risk for Freeport is a decline in commodities prices, specifically copper. Freeport has high fixed costs to mine commodities yet is tied to the variable prices of commodities.
If the price of copper resumes its upward march, the prospects for Freeport and other mining companies could be rosy.
A deflationary environment spurred on by negative interest rates globally could prove a death knell among FCX bulls.
But if gold, a notorious safe haven, catches a bid, expect other commodities to ride on its coattails, which would ultimately be a boon for Freeport.
Freeport McMoran Stock Forecast Summary
The copper-mining giant swung to a loss in the third quarter but significant undeveloped reserves and resources in North America and a portfolio of potential long-term development projects point towards a rosy picture for the company going forward.
A dispute with the Indonesian government forced it to sell a portion of its interest in the Grasberg copper and gold mine. This coupled with falling copper prices and rising mining costs depressed its profits. However, three strategic initiatives announced by the company could help its stock rise in the coming years.
First and foremost, the company is carrying out the process of ramping up a new underground mine at Grasberg, which it says is vital for low-cost, long-lived production.
Also, the company’s Lone Star project in Arizona is nearing completion and is soon expected to be commissioned.
Additionally, the company is investing heavily in new technologies such as machine learning and artificial intelligence, which it hopes will help it significantly increase mining activities at lower operational costs.
Analysts issuing 1-year target prices for Freeport-McMoRan’s shares forecast it will be in the range of $11.50 to $16.00. The stock, presently with an average rating of “Buy”, is expected to reach $13.11 in the next 12 months. This suggests a possible upside of 15% from the stock’s current price, which makes it a valuable investment option.
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