On Wednesday, Morgan Stanley (NYSE:MS) adjusted its stance on Southern Copper Corporation (NYSE:NYSE:SCCO), upgrading the stock from Underweight to Equalweight. This change comes after the stock experienced an approximate 12% decline since its peak in late September.
The firm has also modified its price target for the company to $102.00, down from the previous $106.30. Despite this recent pullback, InvestingPro data shows the stock has delivered an impressive 24.51% return year-to-date, with the current stock price at $103.51.
The analyst from Morgan Stanley cited a more balanced risk-reward scenario for Southern Copper, in light of the recent pullback. Despite ongoing concerns about the political climate in Mexico potentially affecting the company, the firm believes the stock's valuation is now more in line with historical averages. According to the new 2025 estimates, Southern Copper is trading at 10.6 times EBITDA and 19.8 times EPS, which are close to the five-year averages of 10.5 times and 20 times, respectively.
Additionally, the company's free cash flow yield is noted to be above average at 5.0%. InvestingPro analysis indicates the stock is currently trading above its Fair Value, with a P/E ratio of 27.03x. However, the company maintains strong fundamentals with an excellent Financial Health Score and has maintained dividend payments for 29 consecutive years. For deeper insights and access to 10+ additional ProTips, consider an InvestingPro subscription.
The update also included a positive outlook for Nexa Resources (NYSE:NEXA), with an upgrade to Equalweight based on the potential for a significant increase in EBITDA estimates for 2025. The optimism is partly driven by Morgan Stanley's commodities team's zinc price forecast of $1.41 per pound, which aligns with current spot prices but is approximately 17% higher than the consensus.
The analyst highlighted that Nexa's risk-reward balance has improved and concerns over its balance sheet have lessened, with net debt to EBITDA projected to decrease to 1.23 times next year from 2.1 times in the 2024 estimate and 3.5 times in 2023.
Nexa's new 2025 estimates indicate it is trading at 2.8 times EBITDA and 5.8 times EPS, compared to five-year averages of 4.3 times and 14.7 times, respectively. The firm's year-end 2025 price target for Nexa has been adjusted to $7.8 from the mid-2025 target of $7.5.
In other recent news, Grupo Mexico has received an upgrade from JPMorgan, shifting the rating from Neutral to Overweight due to perceived undervaluation. JPMorgan has increased the price target for Grupo Mexico's shares from Peso104.00 to Peso137.00, suggesting a 39% upside.
Meanwhile, Southern Copper Corporation, a company under Grupo Mexico's control, has also seen an upgrade in its stock rating by JPMorgan from Underweight to Neutral. The upgrade reflects Southern Copper's significant exposure to the copper market, with about 85% of its revenues derived from the metal.
In other developments, Southern Copper recently reported its third-quarter earnings, surpassing analyst expectations. The company posted adjusted earnings per share of $1.15, beating the analyst consensus of $1.11. However, the revenue for the same period was slightly below estimates, totaling $2.93 billion against the estimated $2.94 billion. Citi analysts noted that the third-quarter EBITDA of $1.7 billion was in line with their expectations.
Finally, Southern Copper is currently reviewing its historical capital budget for the Tia Maria Project, which stands at $1.4 billion. The company plans to initiate construction, training, and earthmoving activities in the coming months, with construction scheduled to begin in 2025.
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