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Following Sale Of Assets To Anadarko, Macquarie Sets New $10 Target For Freeport-McMoran Shares

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Macquarie cut the price target of Freeport-McMoRan Inc (NYSE: FCX) to $10 from $13 following its sale of its Gulf of Mexico business to Anadarko Petroleum Corporation (NYSE: APC) and expectations of near-term weakness in copper prices.

"While we like the strategy in reducing its energy exposure and eventually returning to a pure-play copper company, we struggle with the amount of cash that was harvested, relative to the amount of EBITDA that was sold," analyst Anthony Young wrote in a note.

"While APC indicates a multiple of 1.5x EBITDA using the forward strip, using a flat oil price for 2017, we believe that this multiple is closer to 3.5x," Young continued.

However, the analyst welcomed FCX move to diversify from energy and focus on its mining operations, which is the company's core strength. The Anadarko deal is expected to cut FCX's energy exposure by about 70 percent, and the analyst expects FCX to exit its remaining energy business over the next 12-18 months.

In addition, the sale will improve the balance sheet of FCX as it will bring total 2016 asset sales to just over $6 billion, and Young expects the company to pay down an additional $1.4 billion in debt following its completion.

"We anticipate net debt-EBITDA will fall to roughly 3-to-1 by year-end 2017," Young noted.

While maintaining a Neutral rating on FCX, Young said the recent deal will make the shares more attractive to metals and mining focused investors.

Latest Ratings for APC

DateFirmActionFromTo
May 2019Seaport GlobalDowngradesBuyNeutral
May 2019Cowen & Co.DowngradesOutperformMarket Perform
May 2019Morgan StanleyMaintainsEqual-Weight

View More Analyst Ratings for APC
View the Latest Analyst Ratings

 

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Posted-In: Anthony Young MacquarieAnalyst Color Price Target Reiteration Analyst Ratings

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