FBR Capital Initiates Coverage on Southern Copper (PCU) with a Market Perform; Waiting for More Attractive Valuation

September 9, 2009 1:13 PM EDT

FBR Capital initiates coverage on Southern Copper (NYSE: PCU) with a Market Perform rating. Price target $25.

FBR analyst says, "Although we like Southern Copper's low-cost assets, exposure to copper, and management willingness to enter into value-protecting hedging transactions at appropriate prices, we recommend investors wait on the sidelines for now and allow valuation to become more attractive from the current level of 8.0x 2010E EV/EBITDA. Our Market Perform rating also reflects our near-term concerns about Southern Copper's parent company, Grupo Mexico, being involved in the bidding war for ASARCO, as well as potential litigations pertaining to the transfer of Southern Copper's shares. Furthermore, we have priced in the restart of the Cananea mine (2Q10), which has been idle for two years because of miner strikes. Any delay to the restart would add downward pressure to the stock."

"FBR estimates are significantly above consensus for 2H09 and 2010, primarily on higher commodity price assumption. We currently expect Southern Copper's 2H09 EPS/EBITDA estimates to be $0.80/$1,224 million, significantly higher than consensus of $0.60/$964 million. For 2010, we expect Southern Copper to report EPS/EBITDA of $2.01/$3,010 million, also higher than consensus of $1.70/$2,429 million."

To see more analyst ratings on PCU Click Here.

Southern Copper Corporation produces and sells copper, molybdenum, zinc, silver, lead, and gold worldwide.

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