Freeport-McMoRan Inc. (FCX) engages in mining mineral properties in North America, South America, and Indonesia. The company primarily explores copper, gold, molybdenum, silver, other metals, and oil and gas. On the other hand, Turquoise Hill Resources Ltd. (TRQ) operates as a mining company. The company explores for copper, gold, and silver deposits. It develops and operates the Oyu Tolgoi copper-gold mine located in Southern Mongolia.
Copper exceeded $5 a pound on Monday after hitting a record-closing high of $4.94 a pound on Friday. The rapid surge in copper prices has been primarily driven by fears of further supply-chain disruptions fueled by the sanctions imposed on Russia. In addition, historically low global stockpiles and rocketing energy costs are helping copper companies expand their profit margins. Moreover, copper demand is expected to remain high due to infrastructure investment growth in the United States and global initiatives to address climate change. Therefore, both FCX and TRQ should benefit.
TRQ has gained 31.8% over the past three months, while FCX has returned 22.4%. However, FCX’s 35.2% gains over the past six months are significantly higher than TRQ’s 31.8% returns. Moreover, FCX is the clear winner with 7.9% gains versus TRQ’s negative returns in terms of the past month's performance.
But which of these two stocks is a better buy now? Let’s find out.
Latest Developments
On January 26, 2022, Richard C. Adkerson, FCX’s Chairman and CEO, said, “We have a clear strategy of being foremost in copper, our balance sheet is strong and the prospects for our business have never been brighter. Our team is focused on continuing strong execution and generating strong cash flows to support advancement of organic growth initiatives and increase cash returns to shareholders under our established financial policy. Our success will support value creation for all stakeholders."
On March 2, 2022, Steve Thibeault, TRQ's Interim CEO, said, "We reset and renewed our partnership with the Government of Mongolia which allowed us to proceed with the development of the underground mine. The Company also reached an amended funding agreement with Rio Tinto that provides a clear path to meeting the Company's estimated funding requirements. The underground mine remains on-track to reach sustainable production in H1 2023.”
Recent Financial Results
FCX’s revenues increased 37.1% year-over-year to $6.16 billion for the fiscal fourth quarter ended December 31, 2021. The company’s operating income grew 34.9% year-over-year to $2.31 billion, while its net income came in at $1.11 billion representing a 56.2% year-over-year increase. Also, its EPS came in at $0.74, up 54.2% year-over-year.
TRQ’s revenues increased 24.4% year-over-year to $503.90 million for the fiscal fourth quarter ended December 31, 2021. However, its operating income declined 14.2% year-over-year to $207.30 million, while its net income came in at $156.40 million representing a 2.2% year-over-year decrease. Also, its EPS came in at $0.78, down 1.6% year-over-year.
Past and Expected Financial Performance
FCX’s net income and EPS grew at CAGRs of 18.3% and 17.5%, respectively, over the past three years. Analysts expect FCX’s revenue to increase 31.9% for the quarter ending March 31, 2022, and 13.5% in fiscal 2022. The company’s EPS is expected to grow 61.3% for the quarter ending March 31, 2022, and 15.3% in fiscal 2022. Moreover, its EPS is expected to grow at a rate of 28.9% per annum over the next five years.
On the other hand, TRQ’s revenue and EPS grew at CAGRs of 8.5% and 8.5%, respectively, over the past three years. The company’s revenue is expected to decrease 29.1% for the quarter ending March 31, 2022, and 30.4% in fiscal 2022. Its EPS is expected to decline 86.1% for the quarter ending March 31, 2022, and 69.3% in fiscal 2022. Also, TRQ’s EPS is expected to decline at a rate of 22.4% per annum over the next five years.
Profitability
FCX’s trailing-12-month revenue is 11.59 times what TRQ generates. FCX is also more profitable with a levered FCF margin of 26.49% compared to TRQ’s negative returns.
Furthermore, FCX’s ROE, ROA, and ROTC of 25.74%, 11.50%, and 16.88% are higher than TRQ’s 7.77%, 4.67%, and 4.95%, respectively.
Valuation
In terms of forward non-GAAP P/E, TRQ is currently trading at 24.29x, 88.4% higher than FCX’s 12.89x. Moreover, TRQ’s forward EV/EBITDA ratio of 12.09x is 87.4% higher than FCX’s 6.45x.
So, FCX is relatively affordable here.
POWR Ratings
FCX has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. On the other hand, TRQ has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
FCX has a grade of B for Quality. This is justified given FCX's 35.60% trailing-12-month ROCE, 110.7% higher than the industry average of 12.86%. On the other hand, TRQ has a Quality grade of C, in sync with its 5.33% trailing-12-month ROCE, 58.5% lower than the industry average of 12.86%.
Of the 36 stocks in the Industrial - Metals industry, FCX is ranked #11, while TRQ is ranked #23 out of 43 stocks in the Miners - Diversified industry.
Beyond what I’ve stated above, we have also rated the stocks for Growth, Value, Momentum, Stability, and Sentiment. Click here to view all the FCX ratings. Also, get all the TRQ ratings here.
The Winner
With rising demand from major end markets such as automotive and construction, both FCX and TRQ are expected to gain. However, it is better to bet on FCX now because of its robust financials, lower valuation, higher profitability, and better growth prospects.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Industrial - Metals industry here. Also, click here to access all the top-rated stocks in the Miners - Diversified industry.
FCX shares rose $0.04 (+0.08%) in after-hours trading Thursday. Year-to-date, FCX has gained 14.71%, versus a -10.42% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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