International mining company Freeport-McMoRan Inc. (FCX) in Phoenix, Arizona, is one of the largest publicly traded copper producers in the world. The company has mining interests in the Grasberg mining district in Indonesia, one of the largest copper and gold deposits, and in several regions of the Americas.
FCX stock has gained 41.8% in price over the past year, outperforming the benchmark S&P 500 returns of 23.9% over that period. This can be attributed to the surge in copper prices in 2021 due to a supply shortage.
So here’s what we think could shape FCX’s performance in the near term:
Performance-based shareholder return policy
Last February, FCX’s Board of Directors adopted a cash flow allocation financial policy in line with its strategic objective of maintaining a strong balance sheet and increasing its cash returns to shareholders. In accordance with the policy, the company announced a dividend payout of $0.15 payable on February 1, 2022. The payout includes a base dividend of $0.075 and a variable dividend of $0.075.
Additionally, FCX launched a $3 billion share buyback program last November after successfully reducing its net debt to its target range of $3 billion to $4 billion. FCX expects to return approximately 50% of its cash flow (net of Capex) to minority shareholders.
Impressive finances
FCX’s revenue over the last 12 months increased 55.6% year-on-year to $21.18 billion. The company’s trailing 12-month EBITDA improved 220.7% year-over-year, while its net profit increased 720.8% in the past year. FCX’s trailing 12-month EPS from continuing operations increased 9828.6% from its value a year ago. And the company’s trailing 12-month tangible book value and leveraged free cash flow increased by 44.6% and 5970.2%, respectively, compared to the same period last year, respectively.
FCX’s revenue and net income have grown at CAGRs of 2% and 7.4%, respectively, over the past three years. And its EPS improved at a CAGR of 9.3%, while its leveraged free cash flow grew at a CAGR of 14% over the past three years.
Consensus Rating and Price Target Indicate Downside Potential
Of 10 Wall Street analysts who rated FCX, six rated it buy, three rated it hold, and one rated it sell. The stock’s 12-month median price target of $42.50 indicates a Potential drop of 5.8%. Price targets range from a low of $28.00 to a high of $50.00.
POWR ratings reflect uncertainty
FCX has an overall rating of C, which equates to Neutral in our proprietary POWR rating system. POWR ratings are calculated by considering 118 separate factors, with each factor weighted to an optimal degree.
FCX has a C rating for value and a D for stability. The stock’s non-GAAP P/E multiple of 14.02 is 6.2% below the industry average of 14.95. However, its forward price-to-sales ratio of 2.74 is 73.2% above the industry average of 1.58, which is in line with its Value rating. Additionally, FCX’s high beta of 2.07 justifies the stability rating.
Of the 35 stocks in the Industrial – Materials sector, FCX is ranked #12.
In addition to the ratings I highlighted above, FCX’s ratings for Growth, Sentiment, Quality, and Momentum can be seen here.
Final result
Analysts expect copper prices to remain volatile in 2022. In this regard, Morgan Stanley analysts said: “Copper is expected to remain volatile and vulnerable to macro moves, with low inventories and relatively light positioning, as new rules in Malaysia tighten scrap markets. We see prices falling from 2H22 as supply increases faster than demand, tipping the balance towards surplus.
This could negatively impact FCX’s revenue and earnings growth potential in the coming months. Thus, we believe investors should wait for copper prices to stabilize before investing in FCX.
How does Freeport-McMoRan Inc. (FCX) compare to its peers?
Although FCX has a C rating in our proprietary rating system, one might consider looking at its industry peers, Ryerson Holding Corporation (RYI) and Atkore International Group Inc. (ATKR), which have an A rating (Strong Buy ).
Note that RYI is one of the few stocks hand-picked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.
Click here to view our Industrial Sector Report
FCX shares were trading at $44.68 per share Wednesday morning, up $1.69 (+3.93%). Year-to-date, the FCX has gained 7.07%, versus a -0.84% rise in the benchmark S&P 500 over the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the dos and don’ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing stocks. Following…
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