UBS Downgrades Freeport-McMoRan (FCX) to Neutral

(Updated - March 3, 2016 7:43 AM EST)

UBS downgraded Freeport-McMoRan (NYSE: FCX) from Buy to Neutral with a price target of $9 (from $6.50). The rating change follows recent share price appreciation.

Analyst Matt Murphy said, "FCX has more than doubled off of its lows in mid-January. It got off to a strong start on asset sales with the sale of a 13% stake at Morenci for $1B. It also came through on covenant relaxation with the leverage covenant on its revolver and term loan raised to 8.0x in Q1-Q3/16, dropping back to 6.0x in Q4/16. Its debt remains unsecured, although if it cannot generate $3B in asset sales by mid-year there are springing collateral provisions to secure the term loan and revolver. While revolver availability was reduced by $500M, FCX's current availability still stands at $2.9B. These actions give FCX further time to continue sale processes, reduce costs and consider longer-term actions to further strengthen its balance sheet and address maturity profiles."

The analyst added, "Despite strong execution year-to-date, hurdles to recovery remain in place. First are commodity prices. The recent lift in the copper price has been a welcome reprieve but we note UBS forecasts H2/15 copper prices at $1.90/lb and as a levered producer FCX remains vulnerable to that. FCX also needs to navigate ongoing discussions in Indonesia to secure its future at Grasberg. Lastly FCX still needs to achieve considerable success on asset sales to achieve its $5-10B medium term debt reduction target. Given these uncertainties and our copper view we believe some caution is warranted."

For an analyst ratings summary and ratings history on Freeport-McMoRan click here. For more ratings news on Freeport-McMoRan click here.

Shares of Freeport-McMoRan closed at $8.97 yesterday.

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