FCX Stock Forecast: The Impact of Rising Copper Prices on FCX

He Xu  This FCX Stock Forecast article was written by He Xu – Financial Analyst at I Know First

Summary

  • The rising copper price influenced Freeport-McMoRan Inc’s capital structure and improved its profitability and solvency.
  • Freeport-McMoRan Inc has confidence in its solvency and liquidity, financing new projects with debt although its equity-to-asset is worse than 86% of peers in the industry.
  • The Piotroski F-Score provides a positive outlook for FCX’s stocks with a score of 9.
(Source: commons.wikimedia)

Overview

Freeport-McMoRan Inc. (FCX) is an international mining company. The Company’s products include refined copper, copper in concentrate, gold, molybdenum, oil, and others in North America Copper Mines, South America Mining Product, Indonesian Mining Product, and Molybdenum. In North America, it operates open-pit copper mines in Arizona and New Mexico, and has molybdenum mines in Colorado.  In South America, the company operates copper mines in Peru and in Chile.

Quarterly Revenue and Earnings

Among three kinds of mines, copper, gold, and Molybdenum, copper took up 79.41% of FCX’s revenue in Q1 2022, increasing by 38.15%. The revenue of gold also increased by 56.56%, accounting for 12.12% of total revenue. The price change of copper has the largest impact on the company’s revenue. Indonesian Mining and North America Copper Mines are the main sources of revenue at 43.1% and 32% respectively in Q1 2022 while South America Mining Product accounted for 22.6% and Molybdenum accounted for 2.2%. In addition, the total revenue increased 37.63% from $4860 million in Q1 2021 to $6689 million in Q1 2022. 

*Source: fcx.com
(Figure 1 – The Revenue Structure Ended on March 31, 2022)

To better understand Freeport-McMoRan Inc’s competitiveness in the Metals & Mining industry, we can look at FCX profitability. So, Operation Margin of 38.88%, Net Margin of 20.79%, ROE of 39.2%, and ROIC of 19.03% are better than over 80% of companies in the same industry.

*Source: gurufocus.com
(Figure 2: FCX vs Metals & Mining Industry)

FCX earnings have continued to perform well in Q1 2022. It reported Q1 Non-GAAP EPS of $1.07, $0.13 above analysts’ estimates. For the last four quarters, EPS continuously beat or met the estimated Consensus EPS based on YahooFinance. Despite a slowdown in the Chinese economy due to covid lockdowns, the price of copper has remained at a high level. We see FCX continuing its strong financial and operational performance under this condition and has the possibility to beat the estimated EPS in the next quarter.

*Source: YahooFinance.com
(Figure 3: EPS Estimation)

Impact of Rising Copper Price on the FCX’s Capital Structure

As mentioned above, the change of copper price influenced FCX’s revenue. The price of copper has increased from $2.33 up to $5.02 since May 2020, however, the copper price decreased a little to $4.29 recently due to renewed China lockdowns and recession fears. Whether the high level of the copper price will continue is determined by the supply and demand. In the short term, top consumer China’s demand is forecast to slow down due to the influence of the pandemic, while supply is expected to increase because of a recovery in mine output, expansions, and new projects this year. Overall, demand for copper is still lower than supply in 2022. That is why copper prices have fallen recently but still remain high.

*Source: tradineconomics.com
(Figure 4: Copper Price Dynamic)

Freeport-McMoRan Inc has obviously benefited from these elevated copper prices, which we could find in its capital structure. Its cash has increased a lot since 2020 and its total debt has decreased gradually for the past 5 years. FCX’s equity-to-asset ratio is 0.3, worse than 85.93% of peers in the same industry, which means that the amount of debt the company uses in its operation is higher than most peers. This will increase the credit risk of the company. However, its interest coverage ratio is 16.38 and debt-to-EBITDA is 0.83, which means the company has enough cash flow to cover the interest payment. Therefore, whatever the short-term or long-term solvency has been improved.

The company continues to use the credit line to finance projects such as Smelter Development Progress. Capital expenditures for the Indonesia smelter projects are being funded with the net proceeds from PT-FI’s unsecured senior notes issued in April 2022 and its available bank credit facilities. From this point, we can see that the company has confidence in its solvency.

According to GuruFocus, I analyzed FCX’s performance based on two indicators, Piotroski F-score and Altman Z-score. Piotroski F-score is a number between 0 and 9 that is used to assess the soundness of a company’s financial position. A score of 9 may indicate that the company’s stock is undervalued and can be interpreted by investors as a good signal to buy the stock. The Altman Z-score is the result of a credit test that measures the likelihood of a company going bankrupt. Although it is at a less safe level, I think FCX could cover interest and debt under strong cash flow and good operation.

(Source: gurufocus.com)

Currently, institutional investors own 77.37% ownership of the company. For the last 12 months, institutional inflows of $8.52 billion are larger than outflows of $6.06 billion. In addition, the number of institutional buyers is more than sellers. Overall, these prove a positive outlook.

(Source: marketbeat.com)

The Yahoo Finance coverage for the company is performed by 23 analysts: 2 of them take the Strong Buy position, while 5 and 12 of them take the Buy and Hold positions. The analysts’ community puts the average target price for the stock at $49.83 while it is currently traded at $36.90.

(Source: yahoo.finance)

Conclusion

FCX is a buy or hold stock with good profitability and solvency. Although the price of copper fluctuates under the impact of the epidemic, it still remains high due to the supply and demand of copper. The company is benefiting from rising copper prices, shown as the huge increase in earnings and revenue. Due to strong cash flow, good solvency, and liquidity, Freeport-McMoRan Inc continues to finance new projects with debt although it has higher leverage compared with peers. In addition, FCX is worth buying from professional analysts and institutional investors.

It is worth paying attention that the stock-picking AI of I Know First has a high signal on the one-year market trend forecasts, supporting my position for the FCX stock forecast. The light green for the short-term forecasts is mildly bullish, while the darker green is a strong bullish signal for the one-year forecast.

Past Success with FCX Stock Forecast

I Know First has been bullish on the FCX stock forecast in the past. On May 8th, 2022 the I Know First algorithm issued a forecast for FCX stock price and recommended FCX as one of the dividend stocks to buy. The AI-driven FCX stock prediction was successful on a 1-month time horizon resulting in more than 11.40%.

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