Is Freeport-McMoRan Stock A Buy?

FCX: Freeport logo

The shares of Freeport-McMoRan (NYSE: FCX) have touched the highs of $50 in recent weeks, assisted by skyrocketing prices of copper and gold. The company is the second-largest producer of copper in the world accounting for almost 7% of the total supply. Thus, its revenues and earnings are largely dependent on commodity cycles. In 2011, copper and gold prices peaked to $4.50/pound and $2000/ounce, respectively, – similar to the trends observed this year. Therefore, investors have been optimistic on FCX stock by pushing it to the levels observed in 2011. But, is there more room for growth? Given the strength in copper futures contracts expiring in December 2023 and December 2024 on the London Metal Exchange, Trefis believes that FCX is unlikely to provide more gains. Our interactive dashboard on Freeport-McMoRan valuation highlights the historical trends in revenues, earnings, valuation multiple, and forecast for FY2022.

Before the pandemic, Freeport-McMoRan’s revenues trended fairly in-line with copper prices, increasing at an annual rate of 12% from $14.8 billion in 2016 to $18.6 billion in 2018 and then declined by 23% to $14.4 billion in 2019 due to lower production in Indonesia. In 2021, revenues surpassed historical levels as copper prices were propelled by rising demand and lower inventories. Freeport is a leading mining company with significant proved reserves of copper, gold, and molybdenum. At the current rate of production, the company’s proved reserves of copper, gold, and molybdenum will last for 35, 24, and 45 years, respectively. The company’s net margins have remained relatively flat within the 4-10% range in recent years with little change in earnings per share as the company was focusing on debt repayments instead of cash return to shareholders.

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Demand For Copper Likely To Remain Strong In The Coming Years

Per annual filings, copper, gold, molybdenum, and other minerals account for 80%, 11%, 6%, and 3% of Freeport’s total revenues, respectively. The demand for copper across construction, electrical, consumer products, industrial machinery, and transportation sectors can be estimated to be 29%, 27%, 22%, 11%, and 11%, respectively. Due to its diverse use across multiple industries, copper demand can be considered a proxy for underlying world economic growth. Notably, the copper futures price for contracts expiring in December 2023, December 2024, and December 2025 is around $10,000 per ton ($5 per pound). Given Freeport-McMoRan’s average realized price of $4.33/pound in 2021, copper futures indicate strong demand in the coming years.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

 Returns Mar 2022
MTD [1]
YTD [1]
Total [2]
 FCX Return 6% 20% 278%
 S&P 500 Return 2% -6% 99%
 Trefis MS Portfolio Return 2% -9% 259%

[1] Month-to-date and year-to-date as of 3/29/2022
[2] Cumulative total returns since the end of 2016

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