Any stock rises with an expansion of trading multiples or with an increase in earnings. As we discussed in the previous part, Freeport-McMoRan (FCX) is trading in line with its long-term trading multiples. Therefore, the focus could be on Freeport’s earnings capacity for the stock’s revival.
In this part, we’ll look at Freeport’s earnings estimates and see what are analysts projecting for Freeport’s earnings. Since we’re more than halfway through 2016, it would be prudent to look at earnings estimates for the next four quarters.
There are several metrics that you can use to measure a company’s profitability. However, for companies in the commodities space, we generally use EBITDA.[1. earnings before interest, tax, depreciation, and amortization]
According to the consensus estimates compiled by Bloomberg, analysts expect Freeport-McMoRan (FCX) to post EBITDA of ~$7.0 billion in the next four quarters. Analysts’ earnings estimates are based on average expected commodity prices.
Although FCX has also diversified into the energy business, copper prices are the largest driver of its earnings. Also, as the company has decided to sell some of its energy assets to Anadarko Petroleum (APC), copper prices could be the key driver of FCX’s earnings in fiscal 2017.
In the coming parts of this series, we’ll look at the outlook for copper prices. This could help us understand how FCX’s earnings could play out in the coming quarters.
The SPDR S&P Global Natural Resources ETF (GNR) can give you a diversified exposure to international natural resources companies. Almost a quarter of GNR’s holdings are invested in metal companies. Together, BHP Billiton (BHP), Rio Tinto (RIO), and Glencore (GLNCY) form almost 9% of GNR’s portfolio.