Freeport-McMoRan Inc (NYSE:FCX) didn’t excite investors with breathtaking first-quarter earnings results, which sent FCX stock falling some 12% so far. But with Wall Street maintaining its consensus 12-month price target of $15, FCX — the world’s largest copper producer — offers almost 30% potential upside from current levels. But can FCX get there?
FCX stock closed Friday at $11.67, down 0.26%. The shares have declined 13.2% year to date, while falling some 28% over the past six months. Not only has FCX trailed the rise in the S&P 500 index during both spans, it has also lagged the Global X Copper Miners ETF (NYSEARCA:COPX), which is about flat this year.
All told, the Arizona-based natural resources company has tons of ground to make up. And while the 30% upside target seems aggressive, investors who are looking for a potential turnaround candidate can do well here.
Issues Impacting FCX Stock
Copper producers are seen as a strong growth candidates for the next several years, thanks to the potential economic catalysts under President Donald Trump’s administration. However, the company reported first quarter fiscal 2017 earnings results that missed Wall Street’s expectations on both the top and bottom lines.
While first-quarter net income of 15 cents per share reversed the year-ago loss of $3.35 per share, it was merely inline with Street estimates.
Meanwhile, revenues grew just 3% year over year to $3.3 billion, missing Wall Street estimates by $130 million. Revenue was impacted by 25% decline in copper sales which suffered from a combination of due to lower ore grades and mining rates. And with production falling almost 20% year over year to 392 million pounds, investors weren’t convinced that Freeport could capitalize on any near-term boost that the White House’s proposed budget can provide.
Reasons to Like FCX Stock
The main question mark keeping FCX lower is the extent of the company’s ability to execute. But as long as the company continues to take the necessary measures to strengthen its capital position and lower debt, Freeport will have staying power. Freeport, which specializes in copper, gold and molybdenum, continues to scale back from an ill-timed entry into the oil drilling industry, which also over-leveraged the company.
At the end of the first quarter, Freeport’s long-term debt stood at roughly $13.1 billion, which marks a 35% reduction from the nearly $20 billion in debt the company had at the beginning of 2016. FCX has sold off several mining and energy assets, including its Deepwater Gulf of Mexico assets sold to Anadarko Petroleum Corporation (NYSE:APC) for $2 billion. And after trimming some $7 billion off its long-term debt last year, Freeport looks better positioned to generate significant free cash flow and build long-term value for shareholders.
Bottom Line for FCX Stock
FCX expects revenue fiscal 2017 volumes to be roughly 3.9 billion pounds of copper, 1.9 million ounces of gold and 93 million pounds of molybdenum. The company assumes average prices of $1,250 per ounce of gold and $9 per pound of molybdenum for the remainder of 2017. These figures would be above the management’s prior forecast when it reported fourth quarter results.
And with FCX stock down 33% from its 52-week high of $17.06, these shares should easily reach $15 by the end of the year on improved production and capital position.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
