UPDATE: Morgan Stanley Upgrades Freeport McMoRan To Overweight

Freeport McMoRan's FCX stock is oversold, in Morgan Stanley's view, down 9% YTD on misplaced concerns about Chinese copper demand, FCX's growth potential, and cost pressures. In a supply-constrained industry, FCX's attractive brownfield expansions should improve earnings power. Morgan Stanley's $65 price target, 18% above its prior base case value, suggests 19% upside. It is driven by a significant increase in earnings estimates. Morgan Stanley expects copper prices to remain near record highs in 2011-12 based on Chinese restocking, favorable demand seasonality, near record low stock/consumption ratio, and supportive Chinese policies. Improving LME/Shanghai price differential and the recent pickup in canceled warrants suggest Chinese buyers are returning to the market. Morgan Stanley has raised 2012-13e EPS by 7-15% and is now 18% ahead of consensus. It assumes volumes 6% above guidance as FCX has beaten guidance by 9%, on average, in the past two years. Morgan Stanley has an Overweight rating and $65 PT on FCX FCX closed Friday at $54.55