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Southern Copper Stock Lost Favor with Analysts

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Southern Copper

Southern Copper (SCCO) hasn’t received any “buy” or equivalent ratings. Among the analysts polled by Thomas Reuters on June 12, five analysts rated Southern Copper stock as a “hold,” four analysts rated it as a “sell,” and one analyst rated it as a “strong sell.” Southern Copper carries a mean consensus target price of $46.8, which represents a potential downside of 8.5% over its closing price on June 11. First Quantum Minerals (FM) and Glencore (GLNCY) are trading 10.6% and 14.4% below their consensus target prices, respectively.

Notably, Southern Copper has been out of favor with analysts for quite some time. However, the stock has defied analysts’ pessimism and is trading with a year-to-date gain of 7.8% as of June 12. Last year, the stock traded above its consensus target price.

Expansion drive

Southern Copper is a pure-play copper miner. The company is investing in new expansion projects. The projects are expected to boost the company’s copper production in the next decade. Southern Copper boasts the low costs per unit and enviable EBITDA margins. So, what could be making analysts bearish on the stock?

Valuation

First, with a 2018 EV-to-EBITDA of 10.8x, Southern Copper is the most expensive stock in our coverage of copper miners. Second, the company’s expansion projects could face hiccups. Notably, several copper mining projects in Latin America (ILF) have faced a backlash from local communities. Despite Southern Copper’s high valuation, it’s a play on copper’s long-term fundamentals.

Next, we’ll see how analysts rate Freeport-McMoRan (FCX).

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