International mining company Freeport-McMoRan Inc. (FCX) in  Phoenix, Ariz., is one of the world’s largest publicly traded copper producers. The company has mining interests in Indonesia’s Grasberg minerals district, one of the largest copper and gold deposit mines, and several Americas regions.

FCX stock has gained 41.8% in price over the past year, outperforming the benchmark S&P 500 index’s 23.9% returns over this period. This can be attributed to surging copper prices in 2021 due to a supply deficit.

So, here is what we think could shape FCX’s performance in the near term:

Performance-based Shareholder Returns Policy

Last February, FCX’s board of directors adopted a financial policy of allocating its cash flows in line with its strategic objective of maintaining a strong balance sheet and increasing its cash returns to shareholders. In line with the policy, the company announced a $0.15 dividend payout payable for  Feb. 1, 2022. The payment includes a $0.075 base dividend and a $0.075 variable dividend.

In addition, FCX launched a $3 billion share repurchase program last November after successfully reducing its net debt to its $3 billion - $4 billion target range. FCX plans to return approximately 50% of its cash flows (net of Capex) to minority shareholders.

Impressive Financials

FCX’s trailing-12-month revenues increased 55.6% year-over-year to $21.18 billion. The company’s trailing-12-month EBITDA improved 220.7% year-over-year, while its net income rose 720.8% over the past year. FCX’s trailing-12-month EPS from continuing operations increased 9828.6% from its year-ago value. And the company’s trailing-12-month tangible book value and levered free cash flow rose 44.6% and 5970.2%, respectively, from the same period last year, respectively.

FCX’s revenues and net income have risen at  CAGRs of 2% and 7.4%, respectively, over the past three years. And its EPS has improved at a 9.3% CAGR, while its levered free cash flow has risen  at a 14% CAGR over the past three years.

Consensus Rating and Price Target Indicate Potential Downside

Of 10 Wall Street analysts that rated FCX, six rated it Buy while three rated it Hold and one rated it Sell. The stock’s 12-month median price target of $42.50 indicates a 5.8% potential downside. The price targets range from a low of $28.00 to a high of $50.00.

POWR Ratings Reflect Uncertainty

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

FCX has a C grade  for Value and a D for Stability. The stock’s 14.02 forward non-GAAP P/E multiple is 6.2% lower than the 14.95 industry average. However, its 2.74 forward Price/Sales ratio is 73.2% higher than the 1.58 industry average, which is in sync with its  Value grade. In addition, FCX’s high 2.07 beta justifies the Stability grade.

Of the 35 stocks in the Industrial – Materials industry, FCX is ranked #12.

In addition to the grades I have highlighted above, one can view FCX’s ratings for Growth, Sentiment, Quality, and Momentum here.

Bottom Line

Analysts expect copper prices to remain volatile in 2022. Regarding this, Morgan Stanley analysts have said, “Copper is likely to remain volatile and vulnerable to macro moves, with low inventories and relatively light positioning, while new rules in Malaysia are tightening scrap markets. We see downside to prices from 2H22 as supply grows faster than demand, tipping the balance into surplus.”

This could negatively impact FCX’s revenues and earnings growth potential in the coming months. Thus, we think investors should wait until copper prices stabilize before investing in FCX.

How Does Freeport-McMoRan Inc. (FCX) Stack Up Against its Peers?

While FCX has a C rating in our proprietary rating system, one might want to consider looking at its industry peers, Ryerson Holding Corporation (RYI) and Atkore International Group Inc. (ATKR), which have an A (Strong Buy) rating.

Note that RYI is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.

Click here to check out our Industrial Sector Report

FCX shares were trading at $44.68 per share on Wednesday morning, up $1.69 (+3.93%). Year-to-date, FCX has gained 7.07%, versus a -0.84% rise in the benchmark S&P 500 index during the same period.

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

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