Analysts Dive In On 2 Basic Materials Stocks: Freeport-McMoRan Inc (FCX), Transocean LTD (RIG)

Freeport-McMoRan Inc

In a research note released Friday, Deutsche Bank analyst Jorge Beristain reiterated a Hold rating on shares of Freeport-McMoRan (NYSE:FCX), while raising the price target to $10.00 (from $9.00), on the back of new Mine-level NAV analysis.

Beristain explained, “To have a more consistent valuation approach with new Mine-level valuations approach, we have revised our model. We have raised our WACC assumption to 9.0% from 8.2% prior, considering rising Cost of Equity (Ke) and Cost of Debt (Kd). Operational changes include lowering molybdenum unit costs to $6.0/lb from ~$8.0/lb through 2018E, trimming LT capex estimates to ~$4.0bn from $4.2bn and assuming LT Working Capital changes at zero. Overall, our 2016-18E EBITDA estimates rise 3% but Net Present Value (NPV) goes up more sharply to $11/share from $9. We have slightly raised our price target (PT) to $10 (from $9) based on 0.9x (1.0x prior) NPV multiple.”

According to, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Jorge Beristain has a yearly average return of -9.7% and a 37.6% success rate. Beristain has a -15.5% average return when recommending FCX, and is ranked #3696 out of 3854 analysts.

Transocean LTD

Nomura analyst Matthew Johnston initiated coverage on shares of Transocean LTD (NYSE:RIG), with a Reduce/Sell rating and a $7 price target, which implies a downside of 20% from current levels.

Johnston wrote, “RIG has done a good job managing through the downturn by aggressively recalibrating active operating costs, G&A, and stacking costs […] We are concerned, however, that the internal efficiency efforts, while commendable, will not be enough to overcome what we expect to be extremely challenging end-market fundamentals for deepwater drillers over the next several years. The overcapacity issue for drillships could linger well beyond 2018, in our view. Demand for deepwater exploration shows no signs of improving and development plans for offshore projects could be deferred for an extended period as operators assess the oil price volatility and gauge economics for long-cycle projects.”


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