Freeport-McMoRan Inc. (FCX) in Phoenix, Ariz., explores for and mines minerals in North America, South America, and Indonesia. As a leading producer of copper, the company has been capitalizing on the accelerating demand due to its critical role in infrastructure building and clean energy transition. As a result, FCX’s share price has surged 26.6% year-to-date and 145.4% over the past year.
However, FCX’s shares have retreated 5.8% over the past months and 8.2% over the past three months. The recent cancellation of FCX’s plans to build a new copper smelter worth $2.8 billion with Tsingshan Holding Group in Indonesia has made investors nervous about the stock’s prospects.
Although higher copper prices and a substantial surge in sales volume helped the company generate strong topline growth, volatility in both gold and copper prices could make things uncertain for the company. Since FCX’s revenues come mainly from gold and copper, a decline in commodity prices could cause its shares to retreat further.
Click here to check out our Gold and Silver Industry Report for 2021
Here is what we think could influence FCX’s performance in the coming months:
Uncertain Outlook
The spot gold price has dropped from nearly $1,900/ounce in May to $1,799.09/ounce currently, representing an approximate 5% decline. Although higher demand for copper, driven by surging infrastructure and home construction activities and increasing government spending on green initiatives, boosted the red metal’s price, as of June 30 it had fallen to $9631.50/mt from $10161.97/mt in May. This decline could be due primarily to concerns surrounding China’s plans to decrease copper stockpiles over the coming months. Since copper and gold sales make up a significant portion of FCX’s revenues, this price volatility makes the stock’s near-term prospects uncertain.
Mixed Growth History
FCX’s total assets and tangible book value have increased at CAGRs of 6% and 8.1%, respectively, over the past three years. However, the stock’s revenue and net income declined at annualized rates of 3.2% and 7.5%, respectively, over this period. Also, its EPS and EBITDA have declined at 7.7% and 3.2% CAGRs, ,respectively, over the past three years. Also, its levered free cash flow decreased at 7% annualized rate over this period.
Favorable Analyst Estimates
Analysts expect FCX’s revenues to increase 85.3% in the current quarter (ended June 2021), 61% in 2021, and 8.8% next year. The company’s EPS is expected to rise 459.3% year-over-year to $3.02 in the current year and 19.2% from its year-ago value to $3.6 in 2022. The Street expects FCX’s EPS to increase at a 25.9% annualized rate over the next five years. FCX has surpassed the consensus EPS estimates in three of the trailing four quarters.
Mixed Financials
FCX’s revenue increased 73.3% year-over-year to $4.85 billion in the first quarter ended March 31, 2021. Its operating income came in at $1.53 billion, versus a $473 million operating loss in the first quarter of 2020. But the company’s total costs and expenses rose 1.4% year-over-year to $3.32 billion. Moreover, as of March 31, FCX’s consolidated debt totaled $9.8 billion, while its consolidated cash totaled $4.6 billion.
Its 38.7% trailing-12-month gross profit margin is 33.2% higher than the 29% industry average. FCX’s respective 11.1% and 37.6% net income margin and EBITDA are 62.7% and 108.2% higher than their industry averages. However, its 0.4% asset turnover ratio is 39.1% lower than the 0.6% industry average.
POWR Ratings Reflect Uncertainty
FCX has an overall rating of C, which translates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with the weighting of each optimized to improve overall performance.
Our proprietary rating system also evaluates each stock based on eight different categories. FCX has a C grade for Quality. The stock’s mixed profitability is in sync with this grade.
The company has a C Momentum grade, which is consistent with its price returns over the past month.
In terms of Growth Grade, FCX has an A. This is in sync with analysts’ expectations about its earnings and revenue growth.
In addition to the grades we’ve highlighted, one can check out additional FCX ratings for Stability, Sentiment, and Value here. FCX is ranked #12 of 38 stocks in the D-rated Industrial – Metals industry.
Click here to view the top-rated stocks in the Industrial – Metals industry.
Bottom Line
Surging demand for copper with the reopening of the global economy has boosted leading copper producer FCX’s revenues. However, the current volatility in gold and copper prices, coupled with the recent cancellation of its new copper smelter development plan in Indonesia, has added uncertainties to its prospects. Therefore, we think investors should wait for the situation to stabilize before investing in the stock.
Click here to check out our Gold and Silver Industry Report for 2021
FCX shares were trading at $34.31 per share on Thursday morning, down $0.34 (-0.98%). Year-to-date, FCX has gained 32.43%, versus a 17.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.
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