Freeport-McMoRan Copper & Gold Inc. (FCX): It’s Time To Buy This Fallen Mining Giant

What does robust free cash flow lead to? A rising dividend. FCX currently pays $1.25 a share, equating to a 4.3% yield. That figure could move up to $2 a share, or 60%, by 2016, even as the payout ratio returns to its long-term 40% rate. Strong free cash flow also leads to diminished concerns about the company’s still high debt load, which has been a key overhang on the stock. Management expects to reduce debt to by $9 billion by 2016, to around $12 billion.

That debt pay down will also come from selected sales of non-core energy fields. “We believe the market will focus on these savings and on the potential asset sales” as an investment positive, note analysts at UBS, which recently boosted its price target from $33 to $35.

Yet even that price target will look too conservative once investors start to shift their focus away from the recent bad news and pivot to better news ahead. When that happens, they’ll start to appreciate that the estimated replacement value of Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX)’s mining and drilling assets is worth roughly $49 a share, according to Merrill Lynch.

By as soon as the next series of quarterly results, slated for October, look for Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) to announce certain asset sales, and equally important, maintain or even boost sales and cash flow guidance, now that the company has lowered guidance to very achievable levels. Barring a complete collapse in copper prices, this stock should start working back to the $40 mark or higher.

Action to Take –>

— Buy FCX at prices up to $34.

— Set stop-loss at $27.

— Set initial price target at $40 for a potential 38% gain in 12 weeks.

This article originally appeared on
It’s Time to Buy a Fallen Mining Giant

– David Sterman
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