Freeport McMoRan: Short for a Trade?

Freeport McMoRan (FCX) stumbled out of the gate this morning after releasing an earnings report that showed slowing demand for copper in China as the world begins to worry about slowing economies everywhere. The price of copper fell dramatically over the past quarter after an incredible run with a number of other commodity names like oil, gas, wheat, coal, and others. This drop in pricing power made it difficult for the Phoenix based miner and producer of gold and cooper to make it's expected earnings numbers for the quarter.

Missed the Quarterly Badly

For the quarter ended September 30th, the company reported net income of $1.31 a share on revenue of $4.62 billion. The company was expected to post $1.45 a share in income on revenue of $4.90 billion. This is the third time out of the last four earnings announcements that have missed expectations. The stock fell early in the trading session today has not recovered, currently down 7.95%. Look for further weakness as investors fret about future earnings expectations and a continue decline in commodity prices.

Costs Reductions Planned

The company plans to reduce its capital expenditures and costs over the current quarter to avoid having a second difficult quarter in a row. The possibility of shutting down mines that are more expensive to run was not taken off the table by company president James Moffett during the conference call this morning.

The Trade

Due to the reduction in the price of copper and the company's tendency to miss estimates as of late, if there is a movement in the stock of Freport McMoRan to the upside without an equivalent change in the company's business during the coming week, this would be a good chance to get short the stock for a trade.

Disclosure: No positions

Comments

[tiger8896:]

Good call on the short trade. Might be time to cover here though, just saw on CNBC that FCX was one of 5 companies that came up on a value screen where their dividend yield is now equal to the forward P/E. Also FCX was just rated a buy on valueengine.com, the site uses a proprietary model to find undervalued companies.

2008 Oct 24 05:56 PM