Morgan Stanley Upgrades Freeport-McMoRan, Says 'Tide Is Turning'

In a report published Tuesday, analysts at Morgan Stanley upgraded

to Overweight. The price target has been raised to $29. The company's financial are improving. Freeport-McMoRan's FCF has reached an "inflection point," driven by growing volumes and declining capex/opex costs. While improving FCF usually leads to a downgrade, the analysts have upgraded the stock, saying that the Indonesian overhang is largely priced in. Morgan Stanley expects the increase in production at the company's copper mines to drive further increase in volumes and decline in cash costs, with a 14 percent year on year decline in total capex likely in 2016. According to the analysts, "Even if copper prices collapse to near marginal cost, we don't think the company will burn cash in 2016-17. Thus, 2015 is the only "bridge year" when the company burns cash, which leaves us less concerned about financing needs to achieve growth targets." In addition, the company intends to sell public equity in its energy business, which the analysts believe would unlock incremental value, while providing the needed funds to drive oil & gas volume growth. "Recent news flow indicates the govt. wants to conclude negotiations soon and is open to extending FCX's contract beyond 2021, which should be a positive catalyst," the analysts added.