Earnings season always brings surprises and serves as a catalyst for ratings. In light of impending and recent reports, analysts weigh in on energy and mining Freeport-McMoRan Inc (NYSE:FCX) and chip maker Avago Technologies Ltd (NASDAQ:AVGO). While one analyst is bullish on the combined Avago/Broadcom merger, citing increased synergies, the other remains on the sidelines for Freeport as it considers selling assets to reduce its debt.
Following its Q4:2015 earnings last month, Freeport McMoRan announced it would sell a portion its assets in an attempt to reduce some of its $20 billion of debt, as investors are deeply concerned of bankruptcy. The volatile nature of commodities has taken a toll on the company, due to a recent plunge in copper and oil prices which sent the stock down 80% since last year and 92% since 2011. This decline was further fueled by a Chinese economic slowdown, resulting in a decrease in demand for raw materials. The company also announced it is looking for a buyer for its oil and gas assets. Further cost-cutting measures include the suspension of its dividend and decreasing capital spending by $1 billion.
As a result of continuing commodity price declines, Jefferies analyst Chris LaFemina weighed in on the company, reiterating his hold rating but raising his price target to $6.50 from $5.
The analyst believes M&A will save the company, and others will follow suit. He states, “M&A activity in the mining sector should increase this year as leveraged miners consider selling high quality assets and miners with financial flexibility are ready to buy.” He also believes asset sales will pose as a catalyst for shares. He continued, “In the case of FCX, a copper asset sale would be a positive for its share price as a sale would improve the company’s liquidity and unlock value, based on our analysis.” As a result of a potential sale, the analyst believes “near-term downside risk has diminished as an asset sale may happen in 1H16.”
Chris LaFemina has a 14% success rate recommending stocks with an average loss of (20.4%) per recommendation. According to TipRanks’ statistics, out of the 6 analysts who have rated the company in the past 3 months, 1 gave a Buy rating while 5 remain on the sidelines. The average 12-month price target for the stock is $6.33, marking a 19% upside from where shares last closed.
Avago Technologies Ltd
Analyst Rick Schafer of Oppenheimer weighed in yesterday on recently acquired Broadcom Ltd (by Avago) prior to its Q1: 2016 early next month. The analyst predicts in line-sale and EPS estimates for the report and a combined 15% exposure to Apple, expecting “iPhone unit weakness” to outweigh any “upside from non-Apple segments” in its Q2:2016 report, set to release in April. Despite this potential iPhone downside, the analyst states that “investors may well choose to focus on combined company go-forward accretion/earnings power.”
Related to guidance, the analyst states “an established reputation for under-promising/over-delivering, and we see upside to $750M/yr of outlined synergies.” Longer term, the analyst states a favorable opinion of the new company, pointing to “its dominant/diversified semiconductor portfolio and future synergies.” Additionally, he is bullish on the company’s cost cutting initiatives and overall decisions, stating, “We see plenty of opportunity upside as mgmt delivers on cost cuts and unannounced (but likely) strategic divestitures. We’d remain long-term buyers here with a $170 target.”
On February 8, 2016, the analyst reiterated his Outperform rating on the company and $170 price target. Analyst Rick Schafer is ranked #7 out of 3,656 analysts on TipRanks. He has a 62% success rate recommending stocks with an average return of 18.4% per recommendation.
Out of the 17 analysts who have rated the company in the past 3 months, 17 gave a Buy rating while 2 remain on the sidelines. The average 12-month price target for the stock is $171, marking a 38% upside from where shares last closed.