FCX Q3 Forecast: Is This Copper Mining Stock a Buy Ahead of Earnings?

Barchart · 10/17 12:12

Shares of copper mining stocks like Freeport-McMoRan (FCX) have delivered market-beating returns to shareholders in recent years. For instance, in the last 12 months, FCX stock has risen over 35%. Moreover, in the last five years, the mining stock has surged over 370%, valuing the company at a market cap of $68.9 billion.

Let’s see if Freeport-McMoRan can continue to deliver outsized gains as it prepares to release its Q3 earnings report next week.

Freeport-McMoRan: Q3 Earnings Forecast at $0.36 Per Share

Freeport-McMoRan is engaged in mining mineral properties in the Americas and Indonesia. It explores for metals including copper (HGZ24), gold (GCZ24), molybdenum, and silver (SIZ24), and energy commodities including oil (CLX24) and gas (NGX24). Its mining assets are located in Indonesia, Chile, Peru, and the U.S., while its oil and gas properties are located in California and the Gulf of Mexico.

According to consensus estimates, Freeport-McMoRan is forecast to report Q3 revenue of $6.46 billion and adjusted earnings of $0.37 per share. This indicates that Wall Street expects sales to rise by 30.4% year over year, while earnings might decline by 10%.

Like other mining companies, Freeport’s performance is tied to commodity prices. Copper prices have remained elevated in the past year due to strong demand and lower inventories, touching a high of $5 per pound in early 2024.

However, a sluggish economy in China has resulted in higher inventory levels and lower copper prices in the last six months. China, the world’s second-largest economy, is wrestling with lower consumer spending and the collapse of the real estate sector. To address the ongoing slump, policymakers in Beijing announced various stimulus measures, including interest rate cuts, which should boost liquidity.

While copper prices were around $4 per pound in early September, they surged more than 10% by the end of the last month, which should positively impact Freeport’s financials. For instance, Freeport expects to generate annual EBITDA (earnings before interest, tax, depreciation, and amortization) of $11 billion if copper is priced at $4 per pound. In comparison, EBITDA will rise to $13 billion at a price of $4.50 per pound.

Copper Demand is Key for Freeport

Copper prices should remain strong due to multiple tailwinds, including decarbonization, digitalization, and connectivity. According to mining giant BHP Group (BHP), global copper demand could increase by 70% overall by 2050 as annual growth trends rebound from pandemic-era lows.

Freeport is among the largest copper producers globally. Last year, it mined more than 4 billion pounds of the industrial metal, along with 1.7 million ounces of gold. As FCX continues to improve its copper-extracting processes, the miner expects copper sales to touch 4.3 billion pounds in 2026.

Additionally, Freeport-McMoRan benefits from a strong balance sheet. It ended Q2 with $300 million of net debt, more than 90% below its net debt of $3 billion in 2021. The company also aims to return 50% of its free cash flow to shareholders via a base dividend, a special dividend, and buybacks.

In the last 12 months, Freeport’s free cash flow has increased to $1.5 billion, up from $455 million in 2023. It pays shareholders an annualized dividend of $0.60 per share, indicating a forward yield of 1.25%.

Is the Copper Mining Stock Undervalued?

Analysts expect Freeport to increase adjusted earnings from $1.54 per share in 2023 to $2.19 per share in 2025. Given its earnings growth forecasts, FCX stock is fairly priced at 22x forward earnings.

Out of the 17 analysts covering FCX stock, nine recommend “strong buy,” two recommend “moderate buy,” and six recommend “hold.”

The average target price for the copper mining stock is $55.65, indicating an upside potential of almost 16% from current prices.

More Stock Market News from Barchart

On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.