UPDATE: Freeport-McMoran (FCX) Seen as Short-term Trading Opp at Morgan Stanley

(Updated - December 16, 2014 11:50 AM EST)

Freeport-McMoran (NYSE: FCX) gained Tuesday after Morgan Stanley highlighted the stock a potential short term tactical trading opportunity. Analyst Paretosh Misra thinks shares are pricing excessive concerns on cash burn and dividend, but he thinks a capex cut will be viewed as a positive by investors.

"At spot prices, we see $2.5-3.0 bn in total cash burn in 2015-16. FCX plans to spend $14 bn in capex in 2015-16 ($6.5 bn on mining and $7.5 bn in energy), against a total EBITDA of ~$19.5 bn at spot prices ($16.0 bn EBITDA from mining and $3.5 bn from energy)," said Misra. "We think the company will announce large capex cuts to stop the cash burn, which should lead to a relief rally in shares. Also, while a small dividend cut (~25%) is possible, we estimate the shares are pricing a ~50% cut."

"For 2015, we believe capex at the GOM Shelf/Inboard Lower Tertiary/Cretaceous ($0.3-0.5 bn), Deepwater GOM ($0.6-0.8 bn deferrals), onshore energy (~$0.2- 0.6 bn), mining growth ($0.2-0.4 bn, mostly deferrals), and mining sustaining capex ($0.1-0.3 bn) could be cut. Cuts to exploration expenses, other corporate costs, and a small dividend cut could provide the rest," he added.

Morgan Stanley has an Equal-weight rating on Freeport-McMoran (NYSE: FCX) with a price target of $30.

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