Freeport-McMoran shares ‘very compelling’ amid strong cash flow outlook
Freeport-McMoRan Inc (NYSE:FCX, ETR:FPMB)[1] is "entering the sweet spot," analysts at Jefferies told investors following the release of the copper giant's latest earnings report. For Q1, Freeport posted earnings per share of £0.24, ahead of estimates of £0.23, as revenue of £5.73 billion beat forecasts of £5.47 billion. The analysts see Freeport headed into a period of rising free cash flow due to higher volumes, lower unit costs and higher price realizations, in part due to COMEX copper price premiums.
"If this all plays out as we expect, it presents an excellent backdrop for the company to accelerate its share repurchases even as it increases investment in its organic growth," Jefferies wrote.
'America's copper champion'
Notably, Freeport's management emphasized its US business on its earnings call, with one slide in its deck referring to the company as "America's copper champion." The analysts wrote that this is "difficult to dispute," with Freeport accounting for 70% of refined US copper production and given its resources and organic growth potential. Freeport's US costs have been elevated, but are now trending lower thanks to operational efficiencies, low-cost leaching initiatives, and other technological improvements, analysts wrote.
Management sees further room for improvement, targeting a reduction from £3.11 per pound in Q1 2025 to between £2.50 and £2.75 per pound over the medium term. "The combination of lower costs and continued domestic price premiums would be a clear positive for Freeport," Jefferies noted, especially if policy developments related to copper's designation as a critical mineral or national security asset provide additional upside. This cost and pricing setup could enhance cash flow from existing operations and improve returns on major Arizona growth projects, including Bagdad 2X and Lone Star.
Stock 'very compelling'
The analysts see the stock priced in the mid-£30s as "very compelling," if the US avoids a recession.
They have a 'Buy' rating on the stock and raised their price target to £50 from £48, implying upside of 33% at the time of writing.
"While copper price volatility is a risk, and we do expect an air pocket in demand this summer, the bottom line is that we expect Freeport to enter a sweet spot of cash flows and capital returns that should lead to share price outperformance over the next 12+ months," they wrote.
Shares of Freeport traded down 1.2% at about £37 midday on Friday.
References
- ^ Freeport-McMoRan Inc (NYSE:FCX, ETR:FPMB) (www.proactiveinvestors.co.uk)