Freeport-McMoRan Stock Rises 500% – What’s Changed?

Freeport-McMoRan Stock Rises 500% - What's Changed?

(NYSE: FCX) has risen an astonishing 6x from its March 2020 lows and at the current price of $ 30, we believe the stock is slightly overvalued. FCX stock fell $ 5 to $ 30 from its recent low against the S&P 500, which was up 70% from its March low. The action has been able to beat the wider market in recent months, with gold prices rising dramatically and remaining high during the ongoing pandemic, while copper prices, which fell after the coronavirus epidemic, have also recovered at a significant rate with stimulus measures announced by various economies. However, gold prices have remained volatile recently and, in fact, have fallen from over $ 2,000 / ounce in August 2020 to around $ 1,860 / ounce in January 2021. Although FCX’s revenue will see a sharp rise in 2021 Due to higher production from Indonesia, gold price volatility could affect earlier projections on FCX ​​revenue growth. We believe the market has been too enthusiastic and that FCX stock has potential downward of around 10% from its current level. Our dashboard provides the key figures of our thinking. Part of the decline in the stock price between 2017 and 2019 is justified by the 12% drop in revenue for Freeport-McMoRan during this period, while the company reported losses in 2019 after making a profit in 2017 and 2018. FCX revenues declined mainly in 2019 and reached even below its 2017 levels, with gold and copper production falling sharply in 2019 due to negligible production from the mine Indonesian woman in Grasberg, who is undergoing a transition from a surface mine to an underground mine. During this period, the P / S multiple fell from 1.7x in 2017 to 1.3x in 2019, as the share price also experienced a significant decline as well as a decline in earnings per share. While FCX’s P / S multiple declined further in early 2020 due to the pandemic, it has recovered above recent historic levels and currently stands at over 3x. We believe the company’s P / S multiple may decline in the near term given the volatility of commodity prices. The global spread of the coronavirus and lockdowns in various cities, which have affected industrial and economic activity, have led to a sharp drop in copper prices as gold prices have recovered. In addition, production has slowed down. This was reflected in the company’s Q1 and Q2 2020 results, which were down 26% and 14%, respectively (on an annual basis). FCX saw some recovery in the third quarter of 2020, when revenue rose 22% due to higher copper shipments and higher gold and copper prices. The gradual lifting of lockdowns has led to a strong recovery in copper prices in recent months. Copper prices appear to have risen, but have peaked as of now, having risen significantly from $ 2.10 / pound in March 2020 to nearly $ 3.70 / pound in January 2021. Moreover, the rally gold also seems to have stopped after the price. rose from $ 1,500 / ounce in early 2020 to over $ 1,950 / ounce in September 2020. In fact, with the opening of the economies, the price of gold has fallen in recent weeks to around $ 1,860 / once currently. The price of gold will likely remain volatile in the short term with a slight downward bias as locks are gradually lifted and investor sentiment regarding the economic recovery has improved. The actual movement of commodity prices and its timing depend on the wider containment of the spread of the coronavirus. Our dashboard provides an overview of the spread of the pandemic in the United States and contrasts with the trends in Brazil and Russia. While the company’s production, shipments and revenue are likely to increase sharply in 2021 as the mining transition at Grasberg is nearing completion, it has already been incorporated into the rally in recent months and is unlikely to lead to a major increase in share price from here. Expectations of higher revenues and profits (due to higher sales volume) should be offset by a decline in the P / S multiple, due to the spike in the price of copper and the price volatility of copper. gold. This put FCX at risk of seeing its share price drop. We believe the stock is already overvalued and should experience a decline of almost 10% in the near term. According to Trefis, equates to $ 28 per share.

Highlights

  • According to Forbes “Freeport-McMoRan Stock Rises to 500% – What’s Changed?”
  • Part of the decline in the stock price between 2017 and 2019 is justified by the 12% drop in revenue for Freeport-McMoRan during this period, while the company reported losses in 2019 after making a profit in 2017 and 2018. FCX revenues declined mainly in 2019 and reached even below its 2017 levels, with gold and copper production falling sharply in 2019 due to negligible production from the mine Indonesian woman in Grasberg, who is undergoing a transition from an open pit to an underground mine. During this period, the P / S multiple fell from 1.7x in 2017 to 1.3x in 2019, as the share price also experienced a significant decline as well as a decline in earnings per share. While FCX’s P / S multiple declined further in early 2020 due to the pandemic, it has recovered above recent historic levels and currently stands at over 3x. We believe that the company’s P / S multiple may decline in the near term given the volatility of commodity prices.

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