In 2002, you could have bought all of this stock you wanted at $5.20 a share (price adjusted for a 2 for 1 split in 2006). The stock recently hit an all time high of $113. It's had a phenomenal run. Can it continue?
Earnings have been booming as prices increase for copper (up 20% in the first quarter compared to the same quarter last year). In 2004, earnings per share (eps) were $3.73, in 2005, $4.76, then $6.92 in 2006. This year analysts are predicting $9.10 but down next year to $8.75 in anticipation of some easing in metals pricing which may or may not happen. Revenues have also jumped, from $1.715 billion in 2004 to this year's expected $6.35 billion. With the assumption of lower pricing, some analysts are forecasting sales to slip to $5.9 billion.
Two numbers jump out when you look at this stock: The Return on Equity and the dividend. The ROE is 58% for the last 12 months. Back in 2003, it was 9.2%. In 2004, it vaulted to 34.7%, followed by 42.1%, then to 55.6% in 2006. The dividend currently is $5.14 a share, up from $3.19 last year and $1.20 the year before that. That dividend is directly tied to profit levels, and if analysts are correct in predicting lower profits, don't expect the dividend to go higher or stay where it is.
It's not just copper that's going up in price. Other metals PCU produces such as zinc, silver and molybdenum byproducts are higher on the year. Along with that advantage, the company has pared purchases from other vendors of concentrates and reduced costs. Taxes are lower for the company as more production is coming from Mexico. It's a perfect storm for profits.
Look for copper production to increase by 15% for PCU this year to around 700,000 metric tons. Most of that reflects the lack of a strike which hampered production last year by about 90,000 metric tons. No strike is anticipated this year. New capacity is being added to a mine in Cananea, Mexico. Estimates are for an additional 33,000 metric tons to come from the new facility. There will also be a new crushing and conveying system able to handle 15 million tons a year. The company is considering an expansion of its concentrator for an additional 35,000 tons a year of milling capacity by 2009.
This stock has had a great run and well deserved. It's delivered the earnings and returned a large percentage of those to investors. If you like this story and spend more time researching PCU, keep in mind that perhaps the best growth is behind it. Copper prices can't keep going up forever even with China demanding more of the base metal. That means profits can't either - nor can the dividend.
Disclosure: Author has no position in PCU