Is Freeport Stock Overheating At $42?
Freeport-McMoRan (NYSE: FCX), has gained around 12% in the last one month, compared to the S&P500 index which is up around 5%. What’s fueling the fire? Copper prices have been on an upward trend, influenced by global economic recovery and increased demand, particularly from sectors like construction and renewable energy. As a leading copper producer, Freeport-McMoRan benefits directly from higher copper prices.
But here’s the catch: Freeport trades at 33x earnings and 9x free cash flow. Flip that, and you get a paltry 3% earnings yield. For comparison, Charles Schwab (NYSE:SCHW), a financial services firm, trades at a lower earnings multiple of 25x and is growing revenue more than twice as fast. Freeport reported a revenue growth of 4.5% in the last twelve months while SCHW grew its revenues by 10.8%. So yes, FCX is strategically positioned to benefit from the growing demand for copper with the growth of artificial intelligence. But at $42 per share, this is a premium valuation chasing a growth story that simply isn’t keeping pace. And when the growth doesn’t live up to the hype? That’s when gravity kicks in. See Buy or Sell Freeport stock?
During the 2008 global financial crisis, Freeport shares fell nearly 87%! In the early stages of the Covid pandemic in 2020, they dropped 61%. And in 2022, amid surging inflation and consumer pressure, Freeport stumbled again with a 52% decline. History shows that the stock has been hit harder than the index.
What’s Driving the Premium?
The growth of artificial intelligence and related technologies has spurred demand for copper, essential in data centers and electrical components. This trend supports a positive outlook for copper producers like Freeport-McMoRan.
But the broader picture is less thrilling. In the first quarter of 2025, Freeport reported a falling net income from $473 million to $352 million year-over-year. Freeport’s lofty valuation hinges on the expectation that the discussions on potential tariffs on copper imports aimed at boosting domestic production, if implemented, will be potentially beneficial in the long term.
What’s Next?
The company posted net income attributable to common stock of $352 million, or $0.24 per share, down from $473 million, or $0.32 per share, in Q1 2024. Revenue for the quarter was $5.73 billion, a decrease from $6.32 billion in the same period last year. Total copper output declined by 20% year-over-year to 868 million pounds, primarily due to a major maintenance project at the Grasberg mine in Indonesia.
Freeport has reaffirmed its full-year 2025 guidance, projecting copper sales of approximately 4.0 billion pounds, gold sales of 1.6 million ounces (higher than earlier estimates), and molybdenum sales of 88 million pounds. The company expects net cash costs to improve to $1.50 per pound, down significantly from the $2.07 per pound reported in Q1.
Why It’s Not All Bad News
Despite a challenging first quarter due to the temporary disruption at its Indonesian smelter, Freeport’s copper sales exceeded expectations, aided by strong U.S. operations and higher market premiums. The company remains focused on long-term growth, with $5 billion in planned capital expenditures for 2025 across smelter projects, mine expansions, and sustainability initiatives. FCX has upside potential backed by rising copper prices, structural demand growth, operational recovery, and strong financial positioning. It’s a leveraged play on the copper megatrend.
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