The commodity super-cycle remains in full swing across the globe. With the usual suspects like gold (GCM24) and silver (SIN24) scaling new highs, copper is also participating in the rally. May-dated copper futures (HGK24) set another new high last week, and ended Friday's session more than 3% higher. Already up an impressive 29% on a YTD basis, copper's uptrend is expected to continue due to secular tailwinds for the industrial metal.
Specifically, brokerage firm Bank of America (BAC) believes that demand for copper will be driven by the green energy transition, manufacturing, data centers, artificial intelligence (AI), and electrification. Separately, McKinsey forecasts electrification to raise annual copper demand to 36.6 million metric tons by 2031. And in a report from S&P Global, the market intelligence firm forecasts that global copper demand will surge by 20% by 2035, up to 30 million metric tonnes per year.
Notably, short-term trends also look encouraging for the red metal.
Considering these tailwinds, here's one established player from the copper mining space that pays a dividend, has earned a consensus “Buy” endorsement from analysts, and is worth considering by investors who are looking to add exposure to this essential industrial metal.
About Freeport-McMoRan Stock
Founded in 1981, Freeport-McMoRan (FCX) is a major mining company primarily focused on copper, along with gold and molybdenum as byproducts. The company operates mines across North and South America and is vital in supplying materials crucial for various industries. Its market cap currently stands at $74.6 billion.
Mirroring the rally in copper prices, FCX's share price has gained 27.5% in 2024 so far. The stock offers a dividend yield of 1.15%, and its payout ratio of 45.1% provides headroom to grow its dividends further in the future.
Freeport Looks Fundamentally Solid
Freeport-McMoRan's results for the latest quarter exceeded Street expectations, with both revenue and earnings surpassing estimates. The company reported revenues of $6.32 billion in the first quarter, denoting a rise of 17.3% from the prior year. Although earnings slipped by 38.5% on a YoY basis to come in at $0.32 per share, that number still managed to top the consensus estimate for EPS of $0.27. Over the past five quarters, the company's EPS has missed expectations on only one occasion.
Operational strength was reflected in Freeport's yearly production and sales for both copper and gold, the two main metals that it mines. Production and sales of copper increased by 12.4% and 33.2% from the previous year to 1.09 billion pounds and 1.1 billion pounds, respectively. Similarly for gold, production rose 35.5% annually to 549,000 ounces while sales more than doubled to 568,000 ounces from 270,000 ounces in the year-ago period.
The company improved its cash balance to $5.2 billion from $4.8 billion at the start of the year. Its long-term debt levels remained unchanged at $8.6 billion.
Backed by its robust fundamentals and a wider bullish case for copper demand, analysts are expecting Freeport-McMoRan to report industry-beating growth in the near term. Forward revenue and EBITDA growth for the company are pegged at 4.79% and 8.32%, compared to sector medians of 0.5% and 1.75%, respectively.
Large Reserves and Indonesian Operations
Freeport-McMoRan has mining operations across North America, South America, and Indonesia. However, its Indonesian operations remain the most profitable unit. As the costs of mining are much lower in Indonesia, the company generated as much as 76% of its operating income from the region. And in the latest quarter, production and sales of both copper and gold rose year-over-year in the region.
Further, the company remarked that “Long-term mine development activities are ongoing for PT-FI’s Kucing Liar deposit in the Grasberg minerals district, which is expected to produce over 7 billion pounds of copper and 6 million ounces of gold between 2029 and the end of 2041.”
Overall, Freeport-McMoRan sits on a substantial copper reserve stockpile. With a whopping 104.1 billion pounds consolidated across its regions, this represents enough copper to comfortably support current operations for the next 25 years. This makes Freeport-McMoRan the owner of the second-largest global copper reserves.
Analysts Say FCX Stock Is a Buy
Overall, analysts have an average rating of “Moderate Buy” for FCX stock. Out of 15 analysts covering the stock, 8 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating and 6 have a “Hold” rating.
Although the mean target price of $50.93 has already been surpassed, the high target price of $60 indicates an upside potential of about 10.6% from current levels.
On the date of publication, Pathikrit Bose did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
