Freeport-McMoRan Vs. Teck Resources — Which Copper Stock Has More Upside?

As the global economy continues its recovery trajectory, the spotlight remains firmly fixed on commodities, particularly copper, a key player in various industrial sectors.

JPMorgan analyst Bill Peterson, has provided valuable insights into the performance and prospects of two prominent players in the copper market: Freeport-McMoRan Inc FCX and Teck Resources Ltd. TECK.

Also Read: AI Boom Can Lead To ‘Potential Demand Growth’ For This Metal, Wall Street Turns Bullish

Supply-Driven Copper Inflection Priced In

Peterson’s analysis delves into the upcoming Q1 results for both the companies, highlighting the nuanced dynamics shaping their performance. Freeport-McMoRan reports the first quarter on April 23, while Teck Resources reports on April 25.

The year, so far, has been very benevolent on copper. The Global X Copper Miners ETF COPX is up over 20% YTD. Freeport-McMoRan and Teck Resources command 4.94% and 4.21% of the COPX portfolio currently. Freeport-McMoRan stock is up 16.45% while Teck Resources stock is up 11.50%. So, the supply-driven inflection appears priced in.

Next Leg Dependent On Demand Improvement

The recent bullish shift in copper prices, outpacing fundamental improvements, underscores the need for sustained demand growth to justify current valuations. While supply constraints have lent support, the awaited catalyst for further upside lies in a robust recovery in global demand, especially outside China.

Peterson sees growth ahead for copper miners being driven by demand improvement – the next leg in copper’s trajectory.

According to Peterson, Freeport-McMoRan is expected to face provisional pricing adjustments and output challenges in its North and South America assets. On the other hand, Teck Resources is anticipated to benefit from higher realized copper pricing, albeit offset by conservative estimates for its QB2 ramp-up.

Valuation: Despite Freeport McMoRan’s historical appeal as a ‘safe’ investment option with significant copper and gold exposure, investor sentiment appears to favor Teck Resources. This is driven by its growth potential and favorable valuation relative to the former.

Moreover, Teck’s doubling copper exposure by 2025 and leverage to zinc pricing contribute to its promising outlook, especially in light of JPMorgan’s bullish price forecasts.

Teck: Strong FCF Generation, Unique Portfolio Of Greenfield Copper Projects

Peterson maintains an Overweight rating for Teck Resources, with a price target of C$70 ($50), implying an upside of 35%.

He highlighted the company’s strategic positioning amidst evolving market dynamics.

Teck’s diversified portfolio and near-term growth prospects, particularly the de-risking of its flagship QB2 asset, position it for significant production growth and a re-rating post its exit from the carbon-intensive coal business.

Freeport-McMoRan: Additional FCF Starting 2024/2025, Only Incremental Relative Upside

In contrast, Freeport-McMoRan receives a Neutral rating, with a price target of $52, implying an upside of 19%.

While Freeport offers stability and incremental upside through its existing asset base and near-term growth opportunities, Teck’s more favorable valuation and growth potential tilt the scales in its favor.

Bill Peterson underscores the intricate balance between supply dynamics and demand growth shaping the fortunes of copper stocks like Freeport-McMoRan and Teck Resources.

While both companies stand to benefit from a bullish copper market, Teck emerges as the preferred choice for investors seeking greater upside potential and favorable valuations, driven by its diversified portfolio and growth initiatives.

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