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Institutional Equity Research - FCX AFG 50 Update

Wed, 05/27/2009 - 5:01pm

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Related: FCX

Category: Market Analysis

Here is a sample report from our AFG 50 model portfolio. The AFG 50 model portfolio provides institutional investment firms access to a devoted research team and investment process with the specific goal of consistently beating the S&P 500. The AFG 50 leverages our client’s investment process and enables them to focus on their core strengths. Below is a sample equity research report updating our thoughts on FCX:

FCX was added to the AFG 50 portfolio at $24.44 per share.

The Applied Finance Group

FCX Investment Summary:
Freeport McMoRan(FCX) reported a 94% drop in Q1 09 adjusted earnings of $67 million, or $0.17 per share, surpassing analysts’ estimate of $0.13 per share. Sales declined 54% to $2.6 billion, missing the consensus estimate of $2.7 billion. Although copper and gold sales volumes grew 10% and 95%, respectively, the company’s average realized selling price for copper dropped 53% to $1.72/lb, while its gold selling price was 3% lower at $904/oz. Moreover, margins suffered tremendously as production curtailments were not sufficient to moderate the disparity between the cost of production and selling prices. Production costs only declined 38% to $0.66/lb per unit of copper produced, while the price of copper fell by more than half, resulting in a drastic compression in EBITDA margin to 36.4% from 49.6% in the year ago quarter.

Copper prices recently improved to about $2/lb, due to record level purchases from China. Ultimately, copper prices will not realize a significant upward trend until construction markets recover, especially in the U.S. FCX projects 5% lower copper sales volume in 2009 vs. a year ago, while gold sales volume is expected to double, mostly due to the higher grade ore from Grasberg. Assuming that the copper price remains at $2/lb and gold remains at about $900/oz for the rest of the year, management expects its unit production cost this year to approach $0.70/lb of copper, up sequentially from Q1, but 40% lower than in 2008. The company expects to aggressively manage costs by curtailing production and limiting capexto $1.3 billion in 2009 and $1.0 billion in 2010, less than half of what was spent in 2008. A large portion of the capexis going to be utilized to complete the TunkeFungurumedevelopment project and ramp up production in H2 09.

With financial markets experiencing turmoil since late 2008,

Click here to view complete sample client report on FCX

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