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Investing.com -- Glencore (LON:GLEN) has emerged as one of Jefferies’ top equity picks in the global mining sector, with analysts highlighting a potential valuation rebound amid ongoing shifts.
In a note dated Wednesday, analysts at Jefferies said Glencore shares remain undervalued despite a partial recovery in the company’s share price from earlier lows.
The report cites several headwinds that have weighed on Glencore’s valuation, including weak coal prices, declining production volumes, rising operating costs in some segments like copper, and lower liquidity in its shares.
These pressures pushed Glencore’s enterprise value to an all-time low in April, even as its stock price has since begun to rebound.
Despite these challenges, Jefferies analysts said the company’s risk-reward profile is now "heavily skewed to the upside."
Glencore’s current enterprise value/EBITDA ratio stands at 5.7x, with a free cash flow yield of 8.5%, according to their estimates.
Jefferies maintained a “buy” rating on Glencore, with a price target of 380p per share, representing a 31% upside from the current price of 291.10p.
However, they also calculated a more ambitious sum-of-the-parts valuation of 467p per share, suggesting further upside if certain strategic initiatives are executed.
One such strategy under consideration is a potential spin-off of Glencore’s coal and ferroalloys operations into a separately listed entity, possibly in Australia or the United States.
This move could create value by isolating assets that are less favored by European investors due to ESG concerns, while allowing the remaining company, with exposure to copper, zinc, nickel, and the Marketing division, to benefit from increased investor interest and a potential re-rating.
The report also notes that Glencore has historically taken a capital-light approach, opting not to reinvest heavily in its existing operations.
Instead, the company has used mergers and acquisitions to fill production gaps. While this has allowed Glencore to maintain flexibility, it has also led to declining production levels, particularly in copper, where output has fallen by more than 5% annually since 2015.
Jefferies analysts said a rebound in commodity prices, especially coal, could act as a key catalyst for Glencore.
They also believe that a corporate restructuring could eventually position the remaining core business as a potential merger target for other large miners.
While the base case for Glencore’s valuation remains at 380p, Jefferies noted that unlocking the full value of the company would require strategic action.
"We believe a strategic approach to unlocking this value could lead to the share price reaching this SOTP level once again," the analysts said.
In terms of earnings, Glencore is expected to report a 2025 earnings per share of $0.23, up from a loss of $0.13 in 2024. Jefferies’ forecasted EPS for 2025 is 35% above consensus, underscoring their bullish stance.