■ Thoughts Post Call: TEX ripped ~4.5% on an in line quarter and guidance bump on tax following concerns of a miss related to Cranes. In addition to continued strength in AWPs, MHPS looks to have turned the corner as the port business is recovering coupled with restructuring help. Assuming this quarter becomes a trend, confidence for EPS growth in 2014 improves and TEX's 2015 targets look achievable. Additionally, despite a weaker Cranes quarter, TEX was fairly positive on order activity in October, which bodes well for growth in Q4 and into 1H'14. MP remains steady and Construction continues to disappoint. Overall, TEX continues to pull on numerous different levers to achieve earnings growth and reach its targets in a challenging macro environment. We remain encouraged with the growth prospects and improving execution and raise our FY'13-15 EPS to $2.15, $3.20 and $4.60. We increase our PT to $45 which uses a blended approach btw forward P/E and SOTP. TEX remains our top SMID Cap pick within Machinery.
■ Raising 2013 EPS Higher On Tax; Core Biz Trends Largely Unchanged: For 2013, TEX tweaked its EPS guidance higher to $2.05-$2.25 on lower 2013 tax (33%). However, EPS expectations for the underlying business are unchanged. Revs are adjusted downward $200M on each end to $7.3-$7.5B. In summary, AWP is expected to remain fairly strong, and MHPS looks to have turned the corner. Cranes had a soft third quarter but order activity in October bodes well for Q4 and into 1H'14. Construction remains challenged and MP revenues are likely down modestly, but profits can hold strong. For Q4, sales are forecast up y/y and FCF is still expected north of $400M+.
All resistance levels reached in 2013 have now been surpassed. Nothing to stop the stock from climbing above $38 or better.... Upgrades have been coming since earnings release. Not much to complain about here. Hold on and enjoy the ride through early 2014....
22 October 2013
Target price (US$) (from 39.00) 42.00
52-week range 40.58 - 26.82
Freeport-McMoRan Copper & Gold Inc. (FCX)
Strong Q3 Driven by Higher Oil & Gas Margins and Cost Controls; Increasing TP to $42
FCX adjusted Q3 EPS of $0.78. We believe FCX shares have further upside potential from current levels despite our relatively flat copper and gold price forecast as the company executes on its production growth plan, deleveraging goals, and value-enhancing MLP opportunities in the Oil & Gas business. We are increasing our TP to $42 driven by improved oil & gas guidance (production and costs) and stronger assumptions for cost controls in the mining business.
View: Positive. Q3 Beat Driven by Stronger Oil & Gas. Compared to our EPS of $0.60 (consensus of $0.62) stronger oil & gas margins ($64.13/BOE vs. our $58.53/BOE) had a +$0.07/sh impact, lower interest expense a +$0.10/sh impact and lower tax rate a +$0.02 impact/sh. Oil & Gas Business: Sales of 16.5MMBOE came in higher (vs. our 15.1MMBOE) as did realized price at $80.93/BOE (vs. our $75.13/BOE). Mining Business: Copper sales of 1.04Bln lbs was in-line (vs. our 1.06Bln lbs), while cash costs were lower at $1.46/lb copper (vs. our $1.61/lb). Gold sales of 305Koz were slightly below our expectations of 323Koz.
Catalysts: Portfolio review aims to accelerate deleveraging plans. We estimate that based on FCX's current capex schedule (ex-asset sales/divestitures) that the financial deleveraging goal of $12Bln by end-2016 (vs. current: $20.4Bln) requires a $3.50/lb copper price (assuming FCX maintains a $2Bln cash balance). Given FCX's more positive language towards opex/capex reductions and deferrals, we see this goal as very reachable.
Valuation: Maintain Outperform. We are increasing our FY13/14/15 EPS to $2.56/2.94/3.15 (from $2.39/2.87/3.07) to reflect improved oil & gas guidance (production and costs) and