- Freeport-McMoRan (FCX) has risen sharply in Q4. The stock has bridged its underperformance versus the broader markets and is now outperforming the S&P 500 in 2019.
- We’ll explore in this article several factors that have helped FCX stock move higher. We’ll also look at the outlook and analysts’ ratings.
FCX stock has risen 37.2% so far in the fourth quarter. It’s been particularly strong this month and is up 14.8% in December based on yesterday’s closing prices. Notably, FCX underperformed the broader markets in the first three quarters. However, thanks to Q4 outperformance, it has played catch-up with markets and is actually outperforming the S&P 500 now. Let’s see why Freeport-McMoran has shown strength in Q4.
Why Freeport-McMoRan bounced back in Q4
The US-China trade war and China’s slowdown concerns dragged down metal prices over the last year. However, since October there has been palpable optimism over a possible phase one of the China trade deal. Reportedly, President Trump has now signed off on phase one of the trade deal. FCX rose in yesterday’s trading amid optimism over phase one of the trade deal. A US-China trade deal would also support economic expansion in both countries.
China’s copper imports
It’s worth noting that China is the world’s largest copper importer and its copper imports are a leading indicator of its copper demand. Incidentally, the country’s copper imports spiked last month. While unwrought copper imports rose to a multi-month high, copper ore imports surged to an all-time high. Higher Chinese copper imports coupled with better-than-expected manufacturing PMI data helped allay some of the concerns over China’s slowdown and supported FCX’s price action. Some of the other economic indicators also show that China’s economy might be close to bottoming out. Read China Slowdown: Has the Economy Bottomed Out? for more analysis.
FCX 2020 outlook
Analysts polled by Thomson Reuters expect FCX to post an adjusted EBITDA of $2.5 billion in 2019 and $3.9 billion in 2020. However, its EBITDA is expected to rise to $6.5 billion in 2021 as its Grasberg mine ramps up underground operations. From a valuation perspective, Freeport looks fairly valued based on a 2021 EV-EBITDA of 5.2x. We’re not looking at 2020 multiples due to the transition at Grasberg that would depress Freeport’s earnings in 2019 and 2020.
FCX has received a “buy” or higher rating from 12 analysts while the remaining 10 analysts polled by Thomson Reuters have given it a “hold” rating. Freeport’s mean consensus price target of $13.27 represents a potential upside of only 1.6% over yesterday’s closing price.
If phase one of the US-China trade deal goes through, it would help the broader metals and mining sector. Copper prices have been strong this month and might rise further amid trade optimism. That said, most positives already look baked into FCX’s stock prices. While FCX might rise a bit more amid trade deal news, the upside looks capped from these levels. After the run-up, I would be cautious in opening a new position in the stock. Booking profits at these levels might be a better strategy. Remember, the global economy is still not out of the woods yet and China hasn’t yet confirmed phase one of the trade deal. All that being said, FCX’s long-term picture looks strong. Read Freeport-McMoRan: Should You Think Like Warren Buffett for more insights.