Freeport-McMoRan Inc: Don’t Bet on a Recovery in FCX Stock

Freeport-McMoRan Inc (NYSE:FCX) has long been the canary in the coal mine for the commodities bust. The bird is still dead money. Despite having three analysts with a buy rating, the glory days for FCX stock in July 2014 — when Freeport traded for $40 — seem ages away.

Freeport-McMoRan Inc: Don't Bet on a Recovery in FCX StockShares dipped below $12 in Tuesday morning trade after another disappointing quarter, a loss of 2 cents per share, when analysts had been expecting a loss half that size. Meanwhile, Freeport revenues of $3.3 billion were shy of analyst expectations of $3.7 billion.

Revenue was $3.3 billion where analysts had been hoping for $3.7 billion.

The Plains Fact: FCX, then called Freeport-McMoRan Copper & Gold, made what was in retrospect one of the worst deals of 2013, buying Plains Exploration & Production, an oil company, for $16.3 billion, including $9.7 billion in debt. The deal closed in May of that year.

Freeport’s debt load, which before the deal stood at roughly 10%, is now over 40% as the company has been forced to deal with plunging oil prices and lower asset values. The deal was concluded with gold at about $1,400 per ounce, while it is now struggling to hold $1,320, and with copper at $3 per pound, where it now struggles to hold $2. Oil, meanwhile, rose to almost $100 per barrel in 2014 but now trades below $50.

Each time analysts start pounding the table for Freeport, earnings like Tuesday’s come out to pound the FCX stock again.

Optimism this time was fueled by hopes that a bottom has been found, the company having lost $12.2 billion during 2015 as it wrote down assets. Optimism was again misplaced.

No Change at the Top: CEO Richard Adkerson and his team remain at the helm. CFO Kathleen Quirk came to the company with Plains. Adkerson, who made $8.6 million last year, said this time the company had fewer write-downs this quarter and improved its balance sheet.  Adkerson’s compensation looks high until you realize he took in over $55 million in 2013, the year he made the Plains deal.

Hope for the shares remains pinned to the possibility of a rise in commodity prices. Copper is up 15 cents per pound over the last month, and gold is up about $60 per ounce over the last three months.

Hope Springs Eternal

After plunging 5% at the open on the results, FCX surged back in early morning trade to top $12 per share, down just 2%, against the backdrop of a flat market. So maybe there’s a statement of optimism there.

Meanwhile, traders continue to believe that commodity prices are due for a rebound, that copper and gold and oil can’t stay down forever. But they have been down for a long time now, and I wouldn’t put money on a big recovery any time soon.

If you disagree, feel free to take a flyer.

Dana Blankenhorn is a financial journalist who dabbles in fiction, his latest being The Reluctant Detective Travels in Time. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn.

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