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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week

Freeport McMoRan

April 30th 2010 Freeport McMoRan
NYSE Symbol: FCX
Industry: Copper & Gold
Price as of 4/30: $75.53


The earnings keep flooding in better than expected, but after a 4% rally from April 1st, the averages are starting to look a little tired. Profit-taking following spectacular earnings is understable and probabaly healthy for the long term of the broader market. Not only are the earnings great, but a majority of companies are raising guidance going forward which is a good sign for the long term of the economy and the stock market. This week we feature a commodity stock with spectacular earnings last week. The featured stock of the week is Freeport McMoRan. Freeport-McMoRan Copper engages in the exploration, mining, and production of mineral resources. It primarily explores for copper, gold, molybdenum, silver, and cobalt deposits. Freeport is the largest publicly traded copper company in the world with a large portion of their growth coming from the huge demand for copper coming out of China. The recent rally in gold has also helped lift
Freeports profits. But even with the spectacular earning report, the stock still sold off. Freeport also doubled their dividend and then made comments suggesting they expect to raise the dividend even further in the coming years. But even with all this good news, the stock is down 14% from recent highs. Freeport is not a conservative investment, but growth investors looking for a commodity play with long term good fundamentals may want to look at Freeport McMoRan.
Last week, Freeport-McMoRan reported net income of $897 million, or $2 per share, compared with $43 million, or 11 cents per share, in the year-ago period when demand for copper, gold and molybdenum fell sharply due to the recession. Revenue nearly doubled to $4.36 billion from $2.6 billion as rising metal prices far outweighed weaker sales for all three metals. Higher prices helped offset a 23 percent increase in net unit costs. For the quarter, copper sales declined 6 percent, but the company's average realized price doubled, to $3.42 per pound from $1.72 in the year-ago period. Gold sales slid 12 percent. The average sales price was $1,110 an ounce, up from $904 an ounce.Sales of molybdenum, a material used in strengthening steel and other products, jumped 70 percent and prices surged. Thanks to an increase in demand, Freeport is dusting off plans for projects delayed when the recession hit, an indication it believes the global economy is strengthening. The company is increasing production, reopening old plants, and hiring once again. The Chairman of the Board, and President and Chief Executive Officer made positive comments about the future indicating that first-quarter results reflect continued strong performance at our operations around the world and improved pricing for their copper, gold and molybdenum. The strong cash flow generation and positive outlook for business are allowing them to resume their focus on investments in assets which will enable them to develop new projects and enhance long-term operating performance. The company continues to improve their balance sheet, bringing debt net of cash down to $2.3 billion. As mentioned, the Board authorized an increase in common stock dividend.
The analyst community is in love with Freeport. Canaccord Adams raised their target on Freeport-McMoRan to $103 based on an increased copper price forecast. RBC upgraded it to an Outperform. Scotia initiated Freeport-McMoRan with a Sector Perform rating with a target $105. Citigoup upgraded Freeport to a buy indicating their shares are still trailing the S&P by 8% YTD. They also went on to indicate that the stock is attractively valued at 9.5x their 2010 estimate of $7.50 and 8.8x their 2011 estimate of $8.15. Their target price is $95 a share. The recent earnings report has actually increased the earnings per share for this year to $8.24 and $9.15 for next year translating into a PE of 9 times this year and 8 times next years earnings. A pretty attractively valued commodity play with the fundamentals only improving.