Is Wall Street Playing It Safe with Freeport-McMoRan?




Freeport-McMoRan (FCX) has received a “buy” or higher rating from nine analysts, while three analysts rated it as a “sell.” The stock doesn’t have any “strong sell” ratings. Among the analysts polled by Thomas Reuters on June 12, 11 or 48% of the analysts rate the stock as a “hold” or some equivalent. Notably, the stock has the second-highest percentage of “hold” recommendations among the copper miners that we’re covering in this series. Southern Copper (SCCO) has the highest percentage of “hold” recommendations.

Freeport-McMoRan carries a mean consensus target price of $19.32, which represents an 8.2% upside over its closing price on June 12. First Quantum Minerals (FM) and Anglo American (AAL-L) are trading 10.6% and 2.7% below their consensus target prices, respectively.

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Why analysts are on the sidelines

Despite copper prices putting the worst behind them, analysts have been on the sideline when it comes to Freeport-McMoRan. The skepticism could be due to Freeport’s Grasberg operations. Although Rio Tinto (RIO) said that it’s in talks with the Indonesian government to sell its stake in the Grasberg mine, which should reduce Freeport-McMoRan’s divestment obligation, markets fear that Indonesia could come up with new demands. During the first-quarter earnings call, Freeport-McMoRan pointed to new environmental regulations in Indonesia that could make it impossible to operate the mine.

Investors can’t predict the outcome of the negotiations between Freeport-McMoRan and the Indonesia government. The worst case would be international arbitration. Pending the outcome of talks between Freeport-McMoRan and the Indonesia government, Wall Street seems to be playing it safe when rating Freeport-McMoRan.

Next, we’ll see how analysts rate Glencore (GLNCY).


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