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On Tuesday, BMO Capital Markets initiated coverage on Nexa Resources (NYSE:NEXA) shares, listing them with a Market Perform rating and setting a price target of $6.00. The move comes amid observations of the company’s recent struggles with free cash flow generation due to several factors impacting its operations. According to InvestingPro data, despite current challenges, the company shows a strong free cash flow yield of 11%, though analysis suggests the stock is currently undervalued based on Fair Value metrics.
According to BMO Capital Markets, Nexa Resources, with a market capitalization of approximately $799 million, has faced challenges with weak smelting margins and difficulties with its Aripuana project, which has been experiencing a protracted ramp-up period. Additionally, investments in tailings capacity at the El Porvenir and Atacocha mines have also been a focus for the company. The company’s overall financial health score remains GOOD, according to InvestingPro analysis.
Despite these challenges, BMO Capital analysts expect an improvement in Nexa Resources’ operating cash flow. They pointed out that the company’s near-term priority is to reduce its debt, which currently stands at a debt-to-equity ratio of 2.28. While prospects for medium-term growth appear limited, recent data shows the stock has achieved significant returns over the past week, though analysts don’t anticipate profitability this year.Get deeper insights into Nexa Resources with InvestingPro, which offers exclusive access to 10+ additional ProTips and comprehensive financial analysis through the Pro Research Report.
BMO Capital’s analysis suggests that while efforts to deleverage and explore new opportunities could potentially benefit Nexa Resources’ share value, the stock’s low liquidity presents a challenge for larger investors. This factor contributes to the Market Perform rating, indicating that the stock is expected to perform in line with the broader market.
The coverage reinstatement by BMO Capital Markets with a $6 target price reflects a cautious outlook for Nexa Resources as it navigates its operational and financial challenges. The company’s focus on improving cash flow and reducing leverage will be key areas to watch moving forward.
In other recent news, Nexa Resources reported its Q4 2024 earnings, revealing an EPS of $0.3041, which fell short of analyst expectations of $0.3288. However, the company’s revenue exceeded forecasts, reaching $716.68 million compared to the anticipated $698.65 million. Moody’s Ratings has affirmed Nexa Resources’ Ba2 corporate family rating, with the outlook revised to stable due to improved operating performance and reduced leverage. Nexa also announced plans to issue new senior unsecured notes to fund a cash tender offer for existing notes due in 2027 and 2028. This move is part of a broader strategy for liability management and general corporate purposes. The company reported significant production increases in zinc, copper, lead, and silver, driven by improved performance at the Aripuana mine. Nexa’s liquidity position remains strong, supported by a cash balance of $640 million and available credit facilities. The firm has also adopted a new dividend policy targeting payouts of up to 20% of free cash flow, with a minimum of $0.08 per common share.
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