Dj Freeport-Mcmoran Inc. Stock Outperforms Competitors On Strong Trading Day

Freeport-McMoRan (FCX) has been one of the most searched-for stocks on Zacks.com lately. So, you might want to look at some of the facts that could shape the stock's performance in the near term.

Over the past month, shares of this mining company have returned -10.1%, compared to the Zacks S&P 500 composite's +3.1% change. During this period, the Zacks Mining - Non Ferrous industry, which Freeport-McMoRan falls in, has lost 14%. The key question now is: What could be the stock's future direction?

While media releases or rumors about a substantial change in a company's business prospects usually make its stock 'trending' and lead to an immediate price change, there are always some fundamental facts that eventually dominate the buy-and-hold decision-making.

Earnings Estimate Revisions

Here at Zacks, we prioritize appraising the change in the projection of a company's future earnings over anything else. That's because we believe the present value of its future stream of earnings is what determines the fair value for its stock.

We essentially look at how sell-side analysts covering the stock are revising their earnings estimates to reflect the impact of the latest business trends. And if earnings estimates go up for a company, the fair value for its stock goes up. A higher fair value than the current market price drives investors' interest in buying the stock, leading to its price moving higher. This is why empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements.

For the current quarter, Freeport-McMoRan is expected to post earnings of $0.39 per share, indicating a change of +44.4% from the year-ago quarter. The Zacks Consensus Estimate has changed -17% over the last 30 days.

The consensus earnings estimate of $1.51 for the current fiscal year indicates a year-over-year change of -2%. This estimate has changed -4.9% over the last 30 days.

For the next fiscal year, the consensus earnings estimate of $2.10 indicates a change of +39.2% from what Freeport-McMoRan is expected to report a year ago. Over the past month, the estimate has changed -2.2%.

With an impressive externally audited track record, our proprietary stock rating tool -- the Zacks Rank -- is a more conclusive indicator of a stock's near-term price performance, as it effectively harnesses the power of earnings estimate revisions. The size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, has resulted in a Zacks Rank #3 (Hold) for Freeport-McMoRan.

The chart below shows the evolution of the company's forward 12-month consensus EPS estimate:

12 Month EPS

Projected Revenue Growth

While earnings growth is arguably the most superior indicator of a company's financial health, nothing happens as such if a business isn't able to grow its revenues. After all, it's nearly impossible for a company to increase its earnings for an extended period without increasing its revenues. So, it's important to know a company's potential revenue growth.

For Freeport-McMoRan, the consensus sales estimate for the current quarter of $6.07 billion indicates a year-over-year change of +2.8%. For the current and next fiscal years, $25.86 billion and $27.16 billion estimates indicate +13.2% and +5% changes, respectively.

Last Reported Results and Surprise History

Freeport-McMoRan reported revenues of $6.79 billion in the last reported quarter, representing a year-over-year change of +16.6%. EPS of $0.38 for the same period compares with $0.39 a year ago.

Compared to the Zacks Consensus Estimate of $6.46 billion, the reported revenues represent a surprise of +5.12%. The EPS surprise was -5%.

Over the last four quarters, Freeport-McMoRan surpassed consensus EPS estimates three times. The company topped consensus revenue estimates each time over this period.

Valuation

No investment decision can be efficient without considering a stock's valuation. Whether a stock's current price rightly reflects the intrinsic value of the underlying business and the company's growth prospects is an essential determinant of its future price performance.

While comparing the current values of a company's valuation multiples, such as price-to-earnings (P/E), price-to-sales (P/S) and price-to-cash flow (P/CF), with its own historical values helps determine whether its stock is fairly valued, overvalued, or undervalued, comparing the company relative to its peers on these parameters gives a good sense of the reasonability of the stock's price.

As part of the Zacks Style Scores system, the Zacks Value Style Score (which evaluates both traditional and unconventional valuation metrics) organizes stocks into five groups ranging from A to F (A is better than B; B is better than C; and so on), making it helpful in identifying whether a stock is overvalued, rightly valued, or temporarily undervalued.

Freeport-McMoRan is graded B on this front, indicating that it is trading at a discount to its peers. Click here to see the values of some of the valuation metrics that have driven this grade.

Conclusion

The facts discussed here and much other information on Zacks.com might help determine whether or not it's worthwhile paying attention to the market buzz about Freeport-McMoRan. However, its Zacks Rank #3 does suggest that it may perform in line with the broader market in the near term.

Zacks Investment Research

The Invesco S&P 500 Equal Weight Materials ETF (RSPM) was launched on 11/01/2006, and is a passively managed exchange traded fund designed to offer broad exposure to the Materials - Broad segment of the equity market.

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Index Details

The fund is sponsored by Invesco. It has amassed assets over $267.26 million, making it one of the average sized ETFs attempting to match the performance of the Materials - Broad segment of the equity market. RSPM seeks to match the performance of the S&P 500 EQUAL WEIGHT MATERIALS INDEX before fees and expenses.

The S&P 500 Equal Weight Materials Index equally weights stocks in the materials sector of the S&P 500 Index.

Costs

When considering an ETF's total return, expense ratios are an important factor, and cheaper funds can significantly outperform their more expensive counterparts in the long term if all other factors remain equal.

Annual operating expenses for this ETF are 0.40%, making it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 1.89%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Materials sector--about 100% of the portfolio.

Looking at individual holdings, Freeport-Mcmoran Inc (FCX) accounts for about 4.06% of total assets, followed by Albemarle Corp (ALB) and Cf Industries Holdings Inc (CF).

The top 10 holdings account for about 37.96% of total assets under management.

Performance and Risk

The ETF has added roughly 7.96% and is up about 22.07% so far this year and in the past one year (as of 11/14/2024), respectively. RSPM has traded between $31.09 and $37.59 during this last 52-week period.

The ETF has a beta of 1.10 and standard deviation of 20.06% for the trailing three-year period. With about 29 holdings, it has more concentrated exposure than peers.

Alternatives

Invesco S&P 500 Equal Weight Materials ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, RSPM is a reasonable option for those seeking exposure to the Materials ETFs area of the market. Investors might also want to consider some other ETF options in the space.

FlexShares Morningstar Global Upstream Natural Resources ETF (GUNR) tracks Morningstar Global Upstream Natural Resources Index and the Materials Select Sector SPDR ETF (XLB) tracks Materials Select Sector Index. FlexShares Morningstar Global Upstream Natural Resources ETF has $5.50 billion in assets, Materials Select Sector SPDR ETF has $5.69 billion. GUNR has an expense ratio of 0.46% and XLB charges 0.09%.

Bottom Line

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Zacks Investment Research