Mining Stocks

Freeport-McMoRan Inc. Analysis – September 2015 Update $FCX

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – August 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Freeport-McMoRan Inc. (FCX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Freeport-McMoRan Inc. (FCX) is a natural resource company with an industry portfolio of mineral assets, oil and natural gas resources, and a production profile. FCX has organized its operations into six primary divisions: North America copper mines, South America mining, Indonesia mining, Africa mining, Molybdenum mines, and United States oil and gas operations. The Company’s portfolio of assets includes the Grasberg minerals district in Indonesia, mining operations in North and South America, the Tenke Fungurume (Tenke) minerals district in the Democratic Republic of Congo (DRC) in Africa, and oil and natural gas assets in North America. The Company is also engaged in operating copper conversion facilities located in North America, and a refinery, three rod mills and a specialty copper products facility. The Company’s Atlantic Copper smelts and refines copper concentrates and markets refined copper and precious metals in slimes.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of FCX – September 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $11,921,014,123 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.84 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -63.57% Fail
6. Moderate PEmg Ratio PEmg < 20 -24.35 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.86 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.84 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 5.08 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

FCX value Chart September 2015

EPSmg -$0.47
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Value based on 3% Growth -$6.82
MG Value based on 0% Growth -$4.00
Market Implied Growth Rate -16.42%
Current Price $11.46
% of Intrinsic Value N/A

Freeport-McMoRan Inc does not qualify for either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, insufficient earnings growth or stability over the last ten years, inconsistent dividend history, and the high PEmg and PB ratios.  The Enterprising Investor is concerned with the level of debt relative to the net current assets, as well as the lack of earnings growth or stability over the last five years.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) decline from $1.06 in 2011 to an estimated loss of $0.47 for 2015.  This level of demonstrated earnings growth does not support a positive valuation due to the current negative EPSmg.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Freeport-McMoRan Inc. (FCX)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

FCX Charts September 2015

Net Current Asset Value (NCAV) -$30.29
Graham Number #NUM!
PEmg -24.35
Current Ratio 1.84
PB Ratio 0.86
Dividend Yield 8.63%
Number of Consecutive Years of Dividend Growth 0

 

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Most Recent Balance Sheet Figures

Total Current Assets $8,697,000,000
Total Current Liabilities $4,739,000,000
Long-Term Debt $20,111,000,000
Total Assets $54,008,000,000
Intangible Assets $0
Total Liabilities $40,203,000,000
Shares Outstanding (Diluted Average) 1,040,000,000

Earnings Per Share History

Next Fiscal Year Estimate -$4.22
Dec14 -$1.26
Dec13 $2.64
Dec12 $3.19
Dec11 $4.78
Dec10 $2.29
Dec09 $2.93
Dec08 -$14.86
Dec07 $3.75
Dec06 $3.32
Dec05 $2.34
Dec04 $0.43
Dec03 $0.49
Dec02 $0.44
Dec01 $0.27
Dec00 $0.13
Dec99 $0.31
Dec98 $0.34
Dec97 $0.53
Dec96 $0.45
Dec95 $0.49

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate -$0.47
Dec14 $1.71
Dec13 $3.19
Dec12 $2.20
Dec11 $1.06
Dec10 -$0.71
Dec09 -$1.64
Dec08 -$2.95
Dec07 $2.69
Dec06 $1.91
Dec05 $1.06
Dec04 $0.40
Dec03 $0.37
Dec02 $0.30
Dec01 $0.26
Dec00 $0.29
Dec99 $0.39

Recommended Reading:

Other ModernGraham posts about the company

17 Companies in the Spotlight This Week – 9/20/2014
FreePort-McMoRan Inc. Annual Stock Valuation – September 2014 $FCX
5 Undervalued Companies with a High Beta – September 2014
5 Companies to Research with the Lowest PEmg Ratio for the Enterprising Investor – August 2014
5 Highest Dividend Yielding Companies to Research for the Enterprising Investor – August 2014

Other ModernGraham posts about related companies

Alliance Resource Partners LP Analysis – Initial Coverage $ARLP
Goldcorp Inc. Analysis – Initial Coverage $GG
Silver Wheaton Corporation Valuation – Initial Coverage $SLW
Newmont Mining Corporation Annual Valuation – 2015 $NEM
Alcoa Inc. Annual Valuation – 2015 $AA
Consol Energy Inc. Annual Valuation – 2014 $CNX
Peabody Energy Corporation Annual Stock Valuation – 2014 $BTU
FreePort-McMoRan Inc. Annual Stock Valuation – September 2014 $FCX
Freeport-McMoRan Copper & Gold Quarterly Valuation – June 2014 $FCX
Joy Global Inc. (JOY) Quarterly Valuation – April 2014

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to read our full disclaimer.

 

One thought on “Freeport-McMoRan Inc. Analysis – September 2015 Update $FCX

  1. Ben,
    Thanks for improving the user-friendliness of the presentation of the 7 tests for the Defensive Investor and the 5 tests for the Enterprising Investor (for each company review) by including a column with the ‘actual’ numbers for each test. That will be very helpful in our consideration and analysis of each company.

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