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CFRA with the positive fundamental view--Buy for $47 targetFreeport-McMoRan Inc. (FCX) is a major natural resource company with interests in copper, gold, and molybdenum. FCX is one of the world’s largest publicly traded copper producers. Our Strong Buy opinion is driven by FCX’s solid execution, its top-tier (and geographically diverse) copper reserves, and our outlook for stable copper production at around 4.2 billion pounds annually, combined with our bullish view on the underlying copper fundamentals. We think it is highly likely that the copper market will experience an extended period of structural supply deficits, driven by strong demand growth and insufficient new mining projects in the pipeline. Despite pockets of weakness in residential construction markets, global demand remains robust, driven by electric vehicles and electronic products. FCX has significant leverage to copper prices; each $0.10/lb. increase in copper adds around $425 million to annual EBITDA and $335 million to annual cash flow. Our 12-month target of $47 implies an EV/EBITDA of 7.8x our 2023 EBITDA estimate, above FCX’s three-year average forward EV/EBITDA of 6.9x. We expect a strong rebound in copper prices in the intermediate term to be a positive catalyst. Risks to our outlook include lower copper, gold, and molybdenum commodity prices, lower-than expected GDP growth in China and the U.S., and higher-than-expected appreciation of the U.S. dollar. |
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