Why Has Freeport Stock Dropped 25%?

Freeport-McMoRan (NYSE: FCX), one of the largest producers of copper, has seen its stock underperform over the last three months, falling by 25% compared to the S&P 500 which was up 3%. Freeport’s stock price movement is aligned with that for its peers, including Southern Copper Corp, which is down 21%, Rio Tinto (NYSE: RIO) which is down 18%, and VALE (NYSE: VALE) which is down 27% during the same period. 

The company’s performance is heavily tied to copper prices, which have been under pressure due to concerns about global economic slowdown, particularly in key markets like China. Weaker demand for copper, a critical industrial metal, has contributed to the decline. Additionally, the materials sector has faced headwinds as investors react to signs of slowing economic activity globally, leading to a cautious outlook for resource companies. At the current price of around $39 per share we believe Freeport has more to go. Separately, if you want upside with a smoother ride than an individual stock, consider the High Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.

The movement in FCX stock over the last 4-year period has been far from consistent, with annual returns being more volatile than the S&P 500. Returns for the stock were 61% in 2021, -7% in 2022, 14% in 2023, and -10% in 2024. While FCX stock has seen growth over recent years, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has provided better returns with less risk versus the benchmark S&P 500 index over the last four year period; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.  Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could FCX face a similar situation as it did in 2023 and 2024 and underperform the S&P over the next 12 months – or will it see a recovery?

Factors that drove changes in Freeport’s stock over recent months

Some of the decline of the last 3 months is justified by the roughly 7% drop in copper sales in the third quarter of 2024 compared to the previous year. Revenue of the company, however, grew by almost 17% to $6.7 billion in the third quarter of 2024 compared to the previous year. 

While Freeport has seen flattish revenue growth since 2021, its PS multiple has seen a decline falling from 2.6x in 2021 to 2.1x currently. While the company ‘s PS is now 2.1x there is an upside when the current PS is compared to levels seen in the past years: 2.6x at the end of 2021 and 2.7x as recent as 2023.

What to expect from Freeport’s stock

Freeport delivered strong financial performance in Q3 2024. The company reported total revenue of $6.79 billion, a 16.6% increase year-over-year, surpassing analyst expectations of $6.47 billion. Earnings per share (EPS) were $0.36, also exceeding estimates. Copper sales were approximately 1.05 billion pounds, and gold sales reached 456,000 ounces. While copper production declined slightly due to lower ore grades, gold sales rose significantly compared to earlier estimates. For 2024, Freeport was focused on executing its mining initiatives, projecting 4.1 billion pounds of copper and 1.8 million ounces of gold in sales, while continuing to ramp up its smelting projects in Indonesia. The company anticipates consolidated net unit cash costs of $1.58 per pound of copper for 2024. While Freeport has maintained stable operational performance over the recent years, its stock has faced volatility due to external factors like copper price fluctuations and macroeconomic uncertainty. We presently estimate Freeport valuation to be around $47 per share, about 20% ahead of the current market price. 

[1] Returns as of 1/8/2025
[2] Cumulative total returns since the end of 2016

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