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Through its subsidiaries, the Company engages in the exploration, mining, and production of copper, gold, and silver. It also smelts and refines copper concentrates, and markets the refined copper products.
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Invincerator (33.36) Submitted: 1/25/08 12:26 AM : Start Price: $97.86 FCX Score: -27.57
Freeport has had 65% EPS growth for the last 5 years and is projected to grow earnings 50% per year for the next 5 years ... all while having a P/E a little over 9. That's a PEG of less than 0.2 where anything under 1.0 is good. Sales, earnings, and cash flow are all increasing. They have been aggressively paying down debt incurred for the acquisition of Phelps Dodge. Their (modified) return on capital is 85%, which is more than double that of BHP, RIO, and RTP. This is a well-managed company in a sector that has and will benefit from a long-term bull market in commodities. Freeport looks like a screaming buy to me.
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VegetableFool (97.01) Submitted: 2/14/08 11:19 AM
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I'm curious where the projection for 50% growth in earnings is coming from. Its a little hard to believe. The last 5 years came mainly from escalating prices for commodities. I can tell you that at current prices have already impacted decsisions on projects for industry and another 5 years of similar increases would in effect dry up demand. I like this company a lot (made my money off of PCU and PD, just watch Freeport) I just don't see those kind of growth rates.If the growth is coming from production increases (I don't think they can do it as it takes a long lead time, 5ish years, to bring to capacity to the market) I haven't heard about it but 50% increases in output will depress margins for them as margins are now great due to a shortage.
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Invincerator (33.36) Submitted: 4/23/08 11:26 AM
The 50% projected earnings growth was a consensus from analysts that I got from two different sources. I agree that it's just a guess. The contributors to earnings growth that I see coming are: 1. They are re-opening the Climax mine in Colorado, which was the largest Molybdenum mine in the world before it was shut down in 1995. Prices for molybdenum have risen considerably since then and is the reason they are reopening the mine. 2. The price of copper is at an all-time high and futures are telling us they will go over $4/pound. Chinese imports of copper are expected to rise 20% this year. 3. Freeport's earnings will be helped by their aggressive pay-down of debt incurred to purchase Phelps-Dodge - lower debt expenses will help earnings.Do these and other factors add up to 50% earnings growth? I don't know ... I'm looking more for safety margins (PEG=0.2 is a nice safety margin) and economic moats (barrier to entry, etc.).
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