Freeport-McMoRan Inc. FCX is currently trading at a forward price/earnings of 21.65X, a roughly 10% premium to the Zacks Zacks Mining - Non Ferrous industry average of 19.77X, and higher than its five-year median.
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The FCX stock has seen a 15.7% decline in its share price over the past six months. The downside reflects the pullback in copper prices amid uncertainties over U.S. tariffs and concerns over its high production costs, which has led to a downward revision in FCX’s earnings estimates. Freeport has underperformed the industry’s 15.3% decline and the S&P 500’s rise of 6.4%. Its peers, Southern Copper Corporation SCCO, BHP Group Limited BHP and Rio Tinto Group RIO, have lost 11.6%, 9.8% and 3.8%, respectively, over the same period.
Freeport’s 6-Month Price Performance
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Technical indicators show that FCX has been trading below the 200-day simple moving average (SMA) since Nov. 11, 2024. The stock is currently trading below its 50-day SMA. Following a death crossover on Dec. 3, 2024, the 50-day SMA continues to read lower than the 200-day SMA, indicating a bearish trend.
The Zacks Consensus Estimate for 2025 for FCX has been revised downward over the past 60 days. The consensus estimate for the first quarter of 2025 has also been revised down over the same time frame.
Find the latest earnings estimates and surprises on Zacks Earnings Calendar.
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The market appears to have priced FCX’s shares higher despite its bleak earnings trajectory. FCX’s premium valuation may not present a compelling value proposition at these levels. Let’s take a look at the stock’s fundamentals.
FCX’s Growth Actions to Expand Capacity & Drive Production
Freeport is well-placed with high-quality copper assets and remains focused on strong execution and advancing its organic growth opportunities. At its Cerro Verde operation in Peru, a large-scale concentrator expansion provided incremental annual production of around 600 million pounds of copper and 15 million pounds of molybdenum. It is evaluating a large-scale expansion at El Abra in Chile to define a large sulfide resource that could potentially support a major mill project similar to the large-scale concentrator at Cerro Verde. FCX is also conducting pre-feasibility studies (expected to be completed by mid-2026) in the Safford/Lone Star operations in Arizona to define a significant sulfide expansion opportunity. It also has expansion opportunities at Bagdad in Arizona to more than double the concentrator capacity of the operation.
Also, PT Freeport Indonesia (PT-FI) substantially completed the construction of the new greenfield smelter in Eastern Java during 2024, with an expected start-up in mid-2025 followed by a full ramp-up by the end of 2025. PT-FI is also developing the Kucing Liar ore body within the Grasberg district with a targeted commencement of production by 2030. Gold production also commenced at the new precious metals refinery in late 2024. Plans are in place to transition PT-FI’s existing energy source from coal to natural gas, which is expected to significantly reduce greenhouse gas emissions at Grasberg.
FCX’s Solid Financial Health & Capital Discipline Bode Well
FCX has a strong liquidity position and generates substantial cash flows, which allow it to finance its growth projects, pay down debt and drive shareholder value. It generated operating cash flows of around $1.4 billion in the fourth quarter. The same for full-year 2024 climbed around 35% year over year to $7.2 billion. It has distributed $4.7 billion to shareholders through dividends and share purchases since June 30, 2021. Freeport ended 2024 with strong liquidity with $3.9 billion in cash and cash equivalents, $3 billion in availability under the FCX credit facility and $1.5 billion in availability under the PT FI credit facility.
At the end of 2024, Freeport had a net debt of $1.06 billion, excluding smelter projects in Indonesia. Its net debt is below its targeted range of $3-$4 billion. Freeport has a policy of distributing 50% of the available cash to shareholders and the balance to either reduce debt or invest in growth projects. FCX has no significant debt maturities until 2027.
FCX offers a dividend yield of roughly 0.8% at the current stock price. Its payout ratio is 20% (a ratio below 60% is a good indicator that the dividend will be sustainable), with a five-year annualized dividend growth rate of about 21.5%. Backed by strong financial health, the company's dividend is perceived to be safe and reliable.
Higher Production Costs Weigh on Freeport’s Prospects
Freeport faces headwinds from higher costs. Freeport’s consolidated unit net cash costs per pound of copper for fourth-quarter 2024 were 9% higher than the prior-year quarter level. It expects consolidated unit net cash costs to rise to $2.05 per pound of copper in first-quarter 2025 from $1.66 in the fourth quarter. The same for full-year 2025 is expected to increase to $1.60 per pound of copper from $1.56 in 2024. The company is grappling with higher unit net cash costs in North America. Higher labor and mining costs are leading to increased unit costs in the region. Higher costs are likely to weigh on the company's margins.
Falling Copper Prices Pose Worries for FCX
Weak demand in top consumer China due to the property crisis weighed on copper prices in 2024. The economic uncertainty in China and the absence of detailed policy plans raise concerns about future demand. The looming threat of higher U.S. tariffs under the Trump administration added further uncertainty to the market outlook.
While copper started the fourth quarter of 2024 on a strong note, prices remained volatile throughout the period. Prices of copper fell nearly 12% in the fourth quarter, closing the quarter at around $4 per pound. Copper prices surged more than $4.7 per pound earlier this month amid concerns that President Trump could impose tariffs on copper, which would lead to a disruption in the global supply chain. However, prices have clawed back to near $4.5 per pound lately amid surging Chinese inventories and demand worries due to tariff threats. Copper prices are likely to remain under pressure over the near term amid tariff uncertainties and a stronger dollar.
Final Thoughts: Hold FCX Stock for Now
Freeport is expected to gain from progress in expansion activities that will boost production capacity. Robust financial health allows FCX to invest in growth projects and drive shareholder value. Despite these positives, declining earnings estimates, retreating copper prices and high production costs warrant caution. FCX’s stretched valuation also might not offer an attractive entry point at this time. Holding onto this Zacks Rank #3 (Hold) stock will be prudent for investors who already own it.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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