After a tremendous run on the stock market in the first half of the year, where shares appreciated in excess of 14%, Freeport-McMoRan (NYSE:FCX) has started losing some ground of late. In fact, April has been a difficult month for Freeport investors so far with the stock down almost 10%. This weakness in Freeport shares so far this month can be attributed to the recent weakness in copper prices, with the metal witnessing the biggest decline in its price since January.
Last week, copper prices dropped the most in a week since the year began, driven by fears around weakness in Chinese demand. Moreover, a strike at Freeport's Cerro Verde mine has curtailed production, which is again bad news for investors since the mine is seeing rapid production growth and can deliver strong margins due to its high-grade nature.
But, I believe that Freeport will be able to arrest the decline in its stock price as the month progresses, driven by its upcoming first quarter results in the next couple of weeks. Let's see why.
Why Freeport could exceed expectations
In the first quarter, analysts expect that Freeport will post a decline of 16.3% in revenue to $3.47 billion, while its loss will triple to $0.19 per share. Now, this is not surprising since copper prices are currently at lower levels than the year-ago period. However, if we take a look at how Freeport could perform on a sequential basis, things start looking up for the company.
In the fourth quarter, Freeport beat the bottom line estimate by posting a loss of just $0.02 per share while the expectation was for a loss of $0.13 per share. Additionally, it had posted revenue of $3.8 billion. Now, as compared to the fourth quarter of 2015, copper prices improved in the first quarter of 2016. This is shown in the chart
