Is Freeport-McMoran a Buy Following Its More Than 15% Drop Last Week?

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Freeport-McMoRan Inc. (FCX) in Phoenix, Ariz., is a prominent worldwide mining corporation. The company owns and operates substantial, long-lived, geographically varied assets with significant proved and probable copper, gold, and molybdenum deposits. FCX is one of the world’s major publicly listed copper producers.

The company’s shares declined more than 15% in price last week due to slightly weaker management guidance for 2022. However, the stock is up 15.1% over the past nine months and 12.6% over the past three months to close yesterday’s trading session at $41.69.

According to a report by S&P Global, the International Copper Study Group (ICSG) predicts that copper supply will surpass demand by a massive 328,000 mt in 2022. The 2022 surplus is predicated on 3.9% growth in refined output, the largest increase in eight years, and a 2.4% increase in copper demand. We think this bodes well for the stock in the near term.

Here is what could shape FCX’s performance in the near term:

Robust Financials

During the first quarter, ended March 31, 2021, FCX’s total revenue increased 36.1% year-over-year to $6.60 million. Its operating income increased 83.4% year-over-year to $2.80 billion. And the company’s net income grew 112.7% from its year-ago value to $1.53 million, while its EPS grew 116.7% from the prior-year quarter to $1.04.

Strong Profitability

FCX’s 20.8% trailing-12-months net income margin is 145.5% higher than the 8.5% industry average. Also, its ROC, gross profit margin and ROA are 158.7%, 59.8%, and 104.3% higher than the respective industry averages. Furthermore, its $8.33 billion  in cash from operations is 2201.8% higher than the $361.93 million industry average.

Discounted Valuation

In terms of forward Non-GAAP P/E, the stock is currently trading at 10.45x, which is 12.9% lower than the 12x industry average. Also, its 6.50x forward EV/EBIT is 36.6% lower than the 10.25x industry average. Furthermore, FCX’s 7.26x trailing-12-months Price/Cash Flow  is 19.7% lower than the 9.04x  industry average.

Consensus Rating and Price Target Indicate Potential Upside

Among the 15 Wall Street analysts that rated FCX, eight rated it Buy, and six rated it Hold. The 12-month median price target of $49.93 indicates a 19.8% potential upside. The price targets range from a low of $29.00 to a high of $65.00.

POWR Ratings Reflect Solid Prospects

FCX has an overall B grade, which equates to a Buy rating in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also…

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