Southern Copper (SCCO) hasn't enjoyed the same success the broader market has had over the past year as copper prices have been weak. The pricing have been impacted by macroeconomic concerns. However, the company recently noted that fundamentals of the market are sound and, considering its cost structure, SCCO anticipates a year with improved results. The company expects a more stable situation in 2012 that will provide support to copper prices. On a trailing valuation basis the stock is significantly undervalued and analysts aren't too bullish as they incorporate the current copper price into their models. However, if copper recovers to its 2011 highs, that should light a fire under SCCO's stock. Note though, one concern is its premium valuation multiple to close comp Freeport-McMoran (FCX). Below is an in depth look at the valuation metrics and stock chart.
Valuation: Southern Copper's trailing 5 year valuation metrics suggest that the stock is undervalued as all of the metrics are below their respective 5 year averages. Southern Copper's current P/B ratio is 6.6 and it has averaged 6.9 over the past 5 years with a high of 10.7 and low of 4.2. Southern Copper's current P/S ratio is 3.9 and it has averaged 5.3 over the past 5 years with a high of 8.7 and low of 2.9. Southern Copper's current P/E ratio is 11.5 and it has averaged 19.2 over the past 5 years with a high of 56.8 and low of 7.9.
Price Target: The consensus price target for the analysts who follow Southern Copper is $36. That is upside of 14% from today's stock price of $31.71 and suggests that the stock is fairly valued at these levels. This also suggests that the stock has limited upside and should be avoided at its current stock price.
Forward Valuation: Southern Copper is currently trading at about $32 a share with analysts expecting EPS of $2.8 next year, an earnings increase of 9% y/y, for a forward P/E ratio of 11.3. Taking a look at the company's publically traded comparisons will give us a better idea of the stock's relative valuation. Freeport-McMoran is currently trading at about $38 a share with analysts expecting EPS of $5.37 next year, an earnings increase of 30% y/y, for a forward P/E ratio of 7.1. This suggests that Southern Copper is overvalued relative to its publically traded competitor.
Earnings Estimates: Southern Copper has beat EPS estimates 2 times in the past 4 quarters. The company's EPS figures have come in between -14 cents and 4 cents from consensus estimates or about -20.3% to 5.5% from analyst estimates. The company has reported earnings that have differed from analyst estimates by a wide margin which suggests that the stock may experience upside from earnings surprises.
Price Action: Southern Copper is down 20.4% over the past year, underperforming the S&P 500, which is up 8.4%. Looking at the technicals, the stock is currently below its 50 day moving average, which sits at $32.89 and above its 200 day moving average, which sits at $30.80.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.