Freeport-McMoRan Tumbles on 3rd-Quarter Results
- By Alberto Abaterusso
Freeport-McMoRan Inc. (FCX) collapsed 7.84% to $10.70 per share on Wednesday following the release of its results for the third quarter.
The share price was impacted by the company's plan to reduce spending for new major investments because of trade tensions between the U.S. and China, said CEO Richard Adkerson on Wednesday during the conference call for the third-quarter earnings discussion, reported Bloomberg.
Warning! GuruFocus has detected 1 Warning Sign with FCX. Click here to check it out.
The intrinsic value of FCX
However, operating and financial results were stronger compared to the same quarter of 2017.
Despite lower copper and gold prices per ounce of metal sold, Freeport-McMoRan closed the third quarter with a higher adjusted net income of $514 million or 35 cents per share. Revenue reached $4.91 billion, reflecting nearly 14% growth year over year.
Freeport-McMoRan beat consensus on non-GAAP earnings per share by 2 cents and on revenue by $410 million.
Improved revenue and net income were essentially the result of higher operating rates and ore grades in Indonesia. The net income benefited from a decrease in production costs that the company reported at all its copper mines, mainly because of increased throughput. Higher by-product credits also helped to deliver an increased bottom line.
Freeport-McMoRan sold 1.044 million pounds of copper in the third quarter, which was up 12% year over year. It also moved 837,000 ounces of gold, a 135.8% increase from the prior-year quarter, and 22 million pounds of molybdenum, which was flat compared to a year ago.
The miner generated cash flow of $1.25 billion and used $500 million as capital expenditures, resulting in $750 million in free cash flow.
Freeport-McMoRan has approximately $4.6 billion in consolidated cash and cash equivalents and consolidated total debt amounting to $11.1 billion as of Sept. 30. The company also reported no borrowings and the availability of $3.5 billion at its credit facility.
Preventing the stock from appearing highly attractive is the expectation for the price of copper, which is negative. The red metal is the primary production and main source of income for Freeport-McMoRan, making up about 71-72% of total sales. Gold accounts for 23-22% and molybdenum for the remainder.
Regarding valuation, Freeport-McMoRan is compelling at its share price at close Wednesday. As illustrated in the chart by GuruFocus, the share price is far below the 200-, 100- and 50-day simple moving average lines. The share price at close on Wednesday is just a whisper off the 52-week low of $10.59 and nearly 90% from the 52-week high of $20.25.
The company has everything it needs to support future growth and deliver value to its shareholders. But the commodity has to be supportive through its prices.
Short-term catalysts are a 2.1% increase in its expected gold sales volume for 2018 to 2.45 million ounces from the previous guidance of 2.4 million ounces. It will also close a deal with PT Indonesia Asahan Aluminium for the sale of a majority stake in its subsidiary, PT Freeport Indonesia. The closing should happen sometime between the end of 2018 and the beginning of 2019. From the deal, the company is expecting a general improvement in the operating environment for its Indonesian Grasberg copper and gold deposit, the Freeport-McMoRan's flagship.
The miner forecasts that it will sell about 3.8 billion pounds in 2018, which is unchanged from the previous guidance. The expected sale of molybdenum also remains at 95 million pounds.
The recommendation rating is 2.7 out of 5. The average target price is $16.61 per share.
The share price declined 27% for the 52 weeks through Oct. 24 for a market capitalization of $16.82 billion. The 14-day Relative Strength Indicator is 19.49, within a historical 30 to 70 range. The price-book ratio is 1.64 versus an industry median of 1.74.
In addition, the company will pay a cash quarterly dividend of 5 cents on each ordinary share on Nov. 1. If held constant, the quarterly distribution will lead to a forward dividend of 20 cents per ordinary share, granting a 1.72% yield as of Oct. 24.
Disclosure: I have no positions in any security mentioned in this article.
This article first appeared on GuruFocus.
Warning! GuruFocus has detected 1 Warning Sign with FCX. Click here to check it out.
The intrinsic value of FCX
