Freeport-McMoRan Inc. (FCX, Financial) has been upgraded by Deutsche Bank.
The German firm has released a new rating on the copper mining company headquartered in Phoenix, raised it from Sell to Hold and set a new target price per share of $14.00.
This is the second upgrade over the last 12 months. Since March 2016 Freeport-McMoRan received five ratings and was downgraded three times. During this period, Citigroup initiated a coverage on the copper stock with a neutral rating.
Deutsche Bank’s new target price represents a 12% increase from its previous target price per share of $12.50 when the firm downgraded Freeport from hold to sell on Feb. 21.
The target price per share of $14.00 represents a 6% downside from the average target price of $14.89 per share ranging between a low price of $8.00 and a high price of $21.00, and an 8.7% increase from the current share price of $12.88 per share.
Chris Terry, analyst at Deutsche Bank, believes that “a more supportive commodity picture” will boost Freeport-McMoRan’s free cash flow, reports insidermonkey.com.
Thanks to higher commodity prices in 2016 compared to 2015, the mining company closed the fourth quarter with a profit of 25 cents, a 256.3% increase on a year-over-year basis, missed analysts’ expectation on earnings by 9 cents (-26.50% surprise) and the full year of 2016 with a profit of 23 cents.
In the fourth quarter of 2016, revenue came in at $4.4 billion, a 25.7% increase on a year-over-year basis and missed analysts’ expectations by $40 million. Freeport-McMoRan says it sold 1.2 billion pounds of copper during the last quarter of 2016, 7.1% higher than the same quarter of 2015 when the miner sold 1.12 billion pounds of copper, and it sold 430,000 ounces of gold, a 22.9% increase from the comparable quarter of the previous year when the miner sold 350,000 ounces of gold.
The company says it expects to sell approximately 4.1 billion pounds of copper in 2017, 11.8% lower than the amount of copper sold in 2016, and about 2.2 million ounces of gold.
For the whole year of 2016, revenue came in at $14.83 billion, cash flow from operations was $3.73 billion, and the total amount of funds used as capex was $2.64 billion. The free cash flow generated by the miner during 2016 was $1.09 billion.
For the current year, analysts forecast a 334.80% increase in earnings and a 34% growth in earnings of 2018.
For 2017, Freeport-McMoRan expects to use about $1.8 billion as capex.
As of Dec. 31, 2016, Freeport-McMoRan had $4.25 billion in cash on hand and securities and the total amount of long-term debt is approximately $14.8 billion.
The LT Debt to Equity (MRQ) ratio is 244.51 versus an industry average ratio of 45.23, according to Reuters, and the Interest Coverage (TTM) ratio is -0.49 versus an industry average ratio of 10.44, meaning the company is having a hard time paying interest expenses on the outstanding debt. The mining company is aware of the huge debt burden and is following a strategy to reduce it and divest a part of its assets base.
CEO Richard Adkerson said that Freeport-McMoRan cut its debt by $8.4 billion. Furthermore, Freeport-McMoRan reports that in 2016 it produced $6.6 billion according to its divestment program.
The stock is trading at 1.25 times its sales and at 3.07 times its book value per share. The forward price-earnings (P/E) ratio is 9.59 and the Enterprise Value/EBITDA ratio is 8.89.
The recommendation rating is 2.3, and 14 analysts out of a total of 22 recommend holding shares of Freeport-McMoRan.
Disclosure: I have no positions in Freeport-McMoRan.
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