Freeport-McMoRan (FCX) PT Cut to $8 at FBR Capital Following Dividend Suspension, More Cuts
FBR Capital maintained a Market Perform rating on Freeport-McMoRan (NYSE: FCX), and cut the price target to $8.00 (from $10.00), following dividend suspension. Freeport announced an immediate suspension of its $0.20/share annual dividend, with savings of ~$240M annually. FBR Capital believes that this announcement continues FCX's focus on readjustment in the current market environment, with a focus on the O&G business remaining as cash flow neutral as possible.
Analyst Lucas Pipes commented, "Yesterday, December 9, FCX announced a suspension of its dividend, capex cuts in O&G (total $1.0B in 2016–2017), reduced O&G production guidance (one rig, from three), lower O&G cash production costs (<$16/bbl in 2016–2017), increased mining curtailments (fully curtailing Sierrita Mine), and an amendment to its leverage ratio covenant. FCX has also completed $1.6B in financing from its $2.0B ATM equity offering. We believe the O&G capex reductions are positive for FCX, especially in 2017, when it plans to “substantially fund” its capex of $1.2B at $45/bbl Brent. On the copper side, there was only a modest incremental reduction in production; potential cost savings from the closure were not quantified. FCX, in amending its leverage ratio covenant, implied a peak net debt/EBITDA of 5.9x in 1H16, down to 5.0x by year-end, and lower thereafter. We believe this announcement continues FCX's focus on readjustment in the current market environment, with a focus on the O&G business remaining as cash flow neutral as possible. We lower our price target to $8.00, from $10 (on a lower O&G multiple), and maintain Market Perform."
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Shares of Freeport-McMoRan closed at $6.99 yesterday.