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On Thursday, UBS analyst Myles Allsop upgraded Southern Copper Corporation (NYSE:SCCO) from Neutral to Buy, setting a price target of $120.00. The upgrade comes after a period of underperformance for the mining company, with its shares falling approximately 18% since the end of October. Currently trading at $90.34, the stock is near its 52-week low of $84.33 and appears slightly undervalued according to InvestingPro analysis. This decline was in contrast to the actual copper prices, which Southern Copper trailed by 20%, a pattern also observed in peers like Freeport-McMoRan (NYSE:FCX) Inc.
Allsop’s outlook for Southern Copper is optimistic, citing a couple of key factors expected to drive the stock’s performance over the next 12 months. Firstly, a projected deficit in the copper market could lead to higher copper prices, despite the challenging macroeconomic environment. Secondly, the anticipated volume growth from the Tia Maria project is expected to support approximately 10% growth over the next three to four years. The company’s strong financial position is evident in its "GREAT" overall health score from InvestingPro, with a current ratio of 2.75 and a 30-year track record of consistent dividend payments.
According to Allsop, copper stocks are likely to maintain their premium valuation compared to diversified miners due to the attractive medium-term fundamentals of copper. Specifically, Southern Copper is expected to continue trading at a premium relative to its competitors, Freeport-McMoRan Inc. and Antofagasta (LON:ANTO) PLC, because of its consistent operational performance, high-quality, low-cost, long-life asset portfolio, strong balance sheet, straightforward structure, and growth potential through its extensive resources and project pipeline. The company’s financial strength is reflected in its impressive 41% return on equity and 15.5% revenue growth over the last twelve months. InvestingPro subscribers have access to 12 additional key insights about Southern Copper’s financial health and growth prospects.
The UBS analyst also highlighted that at its current stock price level, Southern Copper is factoring in a 2026 estimated copper price of around $3.75 per pound. This is significantly lower than UBS’s estimate of $5.00 per pound, based on their 12x multiple. With a P/E ratio of 21.03 and a PEG ratio of 0.52, the stock shows attractive valuation metrics relative to its growth potential. The price target of $120.00 reflects this more bullish stance on the future pricing of copper and the company’s potential to capitalize on these market conditions.
In other recent news, Southern Copper Corporation’s subsidiary, Minera Mexico, S.A. de C.V., has successfully priced $1 billion in senior notes, bearing an interest rate of 5.625%, set to mature in 2032. This move, part of an unregistered offering under Rule 144A and Regulation S of the Securities Act of 1933, aims to strengthen the company’s financial position. Southern Copper plans to use the net proceeds from this offering for capital expenditures and general corporate purposes, signaling its commitment to investing in operational infrastructure. The issuance of senior notes is a strategic decision that provides the company with additional resources to support its growth and investment plans. This financial maneuver is a significant development for Southern Copper and its stakeholders, especially in the competitive metal mining industry. The notes are expected to close on February 12, 2025, pending customary closing conditions. Investors should be aware that these securities are not registered under the Securities Act and cannot be offered or sold within the United States without registration or an exemption. This step reflects Southern Copper’s efforts to maintain financial flexibility for future opportunities.
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