Shares of
Southern Copper Corporation
SCCO
scaled a fresh 52-week high of $68.50 during Dec 4 trading session, before retracting to close at $67.27. The surge can primarily be attributed higher silver and copper prices. Further, the company’s upbeat third-quarter results, expected benefits from cost-reduction programs and expansion projects have contributed to this rally.
The company has a market capitalization of $52 billion. It has an expected long-term earnings per share growth rate of 13.2%.
Over the past year, shares of Southern Copper have gained 61.7%, compared with the
industry
’s growth of 64.6%. The company has outperformed the Basic Materials sector and S&P 500, which rallied 20.6% and 17.7%, respectively, in the same time frame.
Meanwhile, earnings estimates for 2020 and 2021 have gained 9.3% and 6.7%, respectively, over the past 60 days. The Zacks Consensus Estimate for earnings 2020 and 2021 projects growth of 1% and 36%, respectively.
Driving Factors
Solid Q3 Earnings:
Southern Copper’s adjusted earnings per share grew 30% year over year to 65 cents in third-quarter 2020, while revenues improved 15% to $2,129 million. The company beat the Zacks Consensus Estimate on both counts driven by increased sales volumes, and higher silver and copper prices.
Rising Copper & Silver Prices:
Copper has been gaining lately on solid demand in China, which is the top consumer, and optimism surrounding coronavirus vaccine. Further, pickup in industrial activity bodes well for both copper and silver given their widespread industrial usage.
Largest Copper Reserves & Lower Costs:
Southern Copper has the largest copper reserves in the industry and operates high-quality, world-class assets in investment grade countries, such as Peru and Mexico. Notably, Peru is currently the second largest producer of copper globally and its output has surged 93% over the 2009-2019 time frame. It is expected grow to 245000 tons in 2022, per Trading Economics. It is also worth mentioning that Peru holds 13% of the world’s copper reserves.
Backed by its constant commitment to increase low-cost production and growth investments, the company is well-poised to continue delivering enhanced performance.
Solid Growth Prospects:
Southern Copper’s board has approved projects in Peru with a total capital budget of $2.8 billion of which $1.6 billion has already been invested. Including the Michiquillay ($2.5 billion) and Los Chancas ($2. billion) projects, its total investment program in Peru runs to $7.9 billion.
In Mexico, the company has a planned investment of $413 million in the Buenavista Zinc — Sonora project. An investment of $159 million is projected for Pilares — Sonora project in Mexico, which comprises an open pit mine operation with an annual production capacity of 35,000 tons of copper in concentrates. The El Pilar project with an investment of $310 million is expected to be completed in 2023 and will add 35,000 tons of copper annually.
The above-mentioned projects and other investments in Mexico will enhance the company’s Mexican operations’ copper production by 16% and zinc production by 93%. The company has a number of other projects that might be developed in the future, which will help it in achieving copper volume production target of 1.5 million tons by 2028.
Zacks Rank & Stocks to Consider
Southern Copper currently sports a Zacks Rank #3 (Hold).
Some better-ranked stocks in the basic materials space include
Fortescue Metals Group Limited
FSUGY
,
BHP Group
BHP
and
Impala Platinum Holdings Limited
IMPUY
. All of these stocks currently flaunt a Zacks Rank #1 (Strong Buy). You can see
the complete list of today’s Zacks #1 Rank stocks here
.
Fortescue has a projected earnings growth rate of 53.6% for the current fiscal. The company’s shares have soared 153% in a year.
BHP has an expected earnings growth rate of 43.3% for the current fiscal. The company’s shares have gained around 23.6% in the past year.
Impala has an expected earnings growth rate of 131.7% for the current fiscal. The company’s shares have surged around 43% in the past year.
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