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Freeport Downgraded to Strong Sell

Zacks Equity Research

On Aug 23, Zacks Investment Research downgraded mining company Freeport McMoRan Copper and Gold Inc. (FCX) to a Zacks Rank #5 (Strong Sell).

Why Downgraded?


Freeport posted mixed second-quarter 2013 results on Jul 23 with adjusted earnings topping the Zacks Consensus Estimate while sales missed the same. The company reported earnings of 49 cents per share in the quarter, a decline of 33.8% from the year-ago earnings of 74 cents. However, it beat the Zacks Consensus Estimate of 41 cents. Profit slid 32% year over year to $482 million, hurt by lower gold and copper pricing. 


Revenues fell roughly 4.2% year over year to $4.29 billion in the second quarter, missing the Zacks Consensus Estimate of $4.45 billion. Gold sales fell to 173,000 ounces of gold from 266,000 ounces in the prior-year quarter due to temporary suspension of operations in Indonesia following an accident.


Freeport’s average realized price per ounce of gold also fell to $1,322 from $1,588 a year ago, while average realized price per pound for copper declined to $3.17 from $3.53 in the prior-year quarter.


Although Freeport has a number of potential growth drivers, it is facing a number of bottlenecks in developing them. Higher production cost and weak pricing remain concerns for Freeport as these may continue to weigh on its bottom line. Ramp up activities at Morenci and Chino are driving the cost higher. The company saw higher unit costs across its North American, South American and Indonesia operations in the second quarter.


Freeport’s copper business remains affected by the sluggish global economy. Copper markets remain soft given the slowing growth in the U.S. and the difficult market conditions in Europe. Demand from key end markets, including construction materials and electronics, still remain weak. 


The Zacks Consensus Estimate for 2013 for Freeport has gone down 8.2% to $2.45 per share. Similarly, the Zacks Consensus Estimate for 2014 has decreased 4.4% to $3.28 per share.


Other Stocks to Consider


Other companies in  the mining industry with favorable Zacks Rank are Kumba Iron Ore Ltd. ( KIROY), with a Zacks Rank #1 (Strong Buy), as well as Avalon Rare Metals Inc. ( AVL) and DRDGOLD Ltd. ( DRD), each carrying a Zacks Rank #2 (Buy).

Read the Full Research Report on FCX

Read the Full Research Report on DRD

Read the Full Research Report on AVL

Read the Full Research Report on KIROY

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