Freeport-McMoRan Copper & Gold Inc. (FCX): Is it a Good Buy Post-Acquisition?

Page 1 of 2

Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) recently announced plans to acquire Plains Exploration & Production and McMoRan Exploration for $3.4 billion (McMoRan) and $2.1 billion (Plains), net the 36% of McMoRan interests currently owned by Freeport and Plains. Billionaire George Soros is one Freeport’s biggest fans, upping his stake over 200% last quarter (see George Soros’ newest picks).

hedge fund research

Freeport saw its shares take a dive after its planned acquisitions, and is still down 13% over the past month. The acquisitions are expected to close in 2Q 2013. Irrespective of the oil and gas additions to Freeport operations, sales are expected to be up 24% in 2013 on higher copper output and gold production. Added long-term growth is expected to come from a secular rise in demand in both of these markets.

Freeport is also the world’s largest producer of low-cost molybdenum, and has significant future potential reserve additions in North and South America, while remaining optimistic about its African operations.

Diversification in the oil and gas industry will likely place a lower multiple on the stock and reduce some investor attractiveness. We see the move as a long-term positive given the global economic rebound, which will increase the demand for energy and copper. Although the debt required to orchestrate the merger scares some investors, the fact that Freeport has a leading balance sheet with only 20% long-term debt-to-equity helps ease our fears.

From a valuation standpoint, Freeport is among the cheapest in the industry at 7x forward earnings. The stock also pays a solid dividend yielding 3.7%, which is only a 35% payout. Although the acquisitions will put pressure on the stock’s multiples in the short run, we believe that ultimately, Freeport should trade more in line with other competitors. Even at a 10x P/E on next year’s EPS estimates, the stock could see an upside of as much as 40% over the next 12 months.

What companies should we compare Freeport to?

Page 1 of 2

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!