Freeport-McMoRan (FCX) is a leading mining company with operations in North America, South America, and Indonesia. Its primary materials are copper, gold, molybdenum, silver, and oil and gas. The company is headquartered in Phoenix, Arizona.
I am bullish on Freeport-McMoRan due to its robust growth momentum, low valuation, and strong support from Wall Street analysts. (See today’s best-performing stocks on TipRanks)
Strengths
The company’s primary strength lies in its operational expertise, enabling it to extract minerals efficiently and operate its assets in an attractive risk-adjusted manner. Furthermore, its diversification across material types and geographies helps minimize risks and stabilize its operational and financial results.
Recent Results
For the third quarter of Fiscal Year 2021, Freeport-McMoRan generated $1.4 billion in net income, or $0.94 per share, while adjusted net income came in at $1.3 billion, or $0.89 per share.
The company’s consolidated sales in Q3 totaled over 1 billion pounds of copper, 402 thousand ounces of gold, and 20 million pounds of molybdenum. For the full year of 2021, consolidated sales are expected to come in at 3.8 billion pounds of copper, 1.3 million ounces of gold, and 85 million pounds of molybdenum.
Freeport-McMoRan generated strong efficiency metrics in Q3 as the $1.24 average unit net cash cost per pound of copper was below the full-year estimate of $1.33. Meanwhile, operating cash flows were robust at $2 billion, ahead of the pace set in the full-year expectations of $7.5 billion.
The balance sheet remained in solid shape, with $7.7 billion in cash on hand at the end of the quarter. That, combined with its fully available $3.5 billion credit facility, gives the company immense liquidity and a very reasonable $2 billion of net debt on the balance sheet (which is roughly equivalent to just one quarter’s worth of operating cash flow).
Management is confident in the company’s future outlook, given how critical copper is to the economy’s future. More than 65% of the world’s copper is required for electrification as electric vehicles use much more copper than traditional internal combustion engine vehicles, and renewable energy technologies use four to five times more copper than fossil fuel energy technologies.
The massive growth forecast for both of these technologies in the coming years and decades is expected to bolster demand for copper exponentially, providing a strong underlying demand base for the metal.
Valuation Metrics
Freeport-McMoRan’s stock looks attractively valued at the moment, given that its EV/EBITDA and price-to-normalized earnings ratios are well below five-year averages.
Its EV/EBITDA ratio is currently 6.9x, and forward price-to-normalized earnings ratio is 11x, whereas the five-year averages are 10x and 17.4x, respectively.
Furthermore, the company is expected to grow significantly moving forward. EBITDA is expected to grow by 170.3% in 2021 and 12.6% in 2022. Also, normalized earnings per share are expected to grow by 463.3% in 2021 and 12.3% in 2022.
Wall Street’s Take
Turning to Wall Street, Freeport-McMoRan earns a Moderate Buy consensus rating on six Buys, three Holds, and two Sell ratings assigned in the past three months. Additionally, the average Freeport-McMoRan price target of $41.45 implies 11.8% upside potential.
Summary and Conclusion
Freeport-McMoRan is a leading global copper miner and also enjoys diversification into other metals. The company has a solid balance sheet that positions it to weather the cyclicality in copper prices and a well-diversified portfolio that smooths out its operating results.
Between Wall Street’s general bullishness and the attractive valuation multiples currently attached to the stock, now looks like it might be a good time to add shares. At the same time, copper prices have proven to be highly volatile, so investors should expect the stock price to be highly volatile as well.
Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.
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