Freeport-McMoRan (FCX) Near Inflection Point, Morgan Stanley Upgrades to Overweight

(Updated - April 28, 2015 10:21 AM EDT)

Morgan Stanley upgraded Freeport-McMoRan (NYSE: FCX) from Equalweight to Overweight with a price target of $29.00, suggesting potential upside of over 30% from yesterday's closing price. Analyst Paretosh Misra said he was less concerned about financing needs given ramping volumes and declining costs. He also thinks consensus expectations are now too low.

"FCX's copper growth projects are near an inflection point. Production increase at copper mines will drive a 28% increase in volumes, 22% decline in cash costs, and a 14% decline in total capex in 2016 on a YoY basis. At current prices, operating CF should exceed capex by $1.7 bn in 2016 and $2.3 bn in 2017. Even if copper prices collapse to near marginal cost, we don't think the company will burn cash in 2016-17. Thus, 2015 is the only “bridge year” when the company burns cash, which leaves us less concerned about financing needs to achieve growth targets," said Misra.

"The company's plan of a potential sale of public equity in the energy business should unlock incremental value and could provide funding to drive growth in oil & gas volumes," continued the analyst.

Misra added, "After a ~45% downgrade to cons. EBITDA estimates since 2014 (Ex 6), we think expectations are now overly bearish. On pricing, we have become more near-term constructive as copper inventories have started to decline and Chinese copper premiums are off their 2-year lows. Further, we expect FCX's costs to decline in 2016-17 as Grasberg transitions to higher metal grade zone and Cerro Verde & Morenci ramp up."

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 $21.82 yesterday.

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