Time To Book Profits on This NYSE-Listed Copper Mining Major – SCCO

Mar 29, 2022 12:00 AM PDT | Team Kalkine
Time To Book Profits on This NYSE-Listed Copper Mining Major – SCCO


Time To Book Profits on This NYSE-Listed Copper Mining Major – SCCO

Southern Copper Corporation

Southern Copper Corporation (NYSE: SCCO) is a copper and mineral integrated producer with operations in Peru and Mexico, including mining, smelting, and refining. Copper, molybdenum, zinc, and silver are among the metals it produces. Peruvian activities, Mexican open-pit operations, and Mexican underground mining operations are the company's three segments. Most of its revenue comes from copper sales, with the remainder from non-copper items like molybdenum, silver, zinc, lead, and gold.

Why should Investors Book Profits?

  • Leveraged Balance Sheet: As of December 31, 2021, the company's debt/equity ratio was 0.80x, compared to the industry median of 0.22x. Furthermore, its long-term debt-to-total-capital ratio was 42.3%, compared to 13.0% for the industry during the same period. As a result, the company's exposure to balance-sheet risk has increased.
  • Long Cash Conversion Cycle: The company's cash conversion days were 88.9 days at the end of December 31, 2021, compared to the industry median of 63.7 days, showing that it takes a long time to convert its inventory to cash.
  • Global Headwinds: London copper fell on March 29, 2022, giving up the previous session's gains as COVID-19 infections spread among major metals consumers; China has highlighted concerns about demand. Shanghai nickel has already plunged by nearly 4%. Shanghai, China's financial capital, has begun a two-stage lockdown to manage a coronavirus outbreak, adding concerns about the world's second-largest economy's development prospects.
  • Supply Chain Risk: As a result of present challenges in the global shipping industry, the company is in danger of supply chain disruptions, which could impair its operations and development projects. However, if these issues continue for a long time, the company's supply chain and sales flow may be harmed.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

SCCO's share price has surged 30.77% in the past six months and is currently leaning towards the higher band of the 52-week range of USD 54.92 to USD 83.29. The stock is currently trading far above its 50 and 200 DMA levels, and its RSI Index is at 59.54, retraced from the overbought zone. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 68.00.

Considering the surge in the stock price in the past six months, leveraged balance sheet, global headwinds, current valuation, and associated risks, we recommend a "Sell" rating on the stock at the current price of USD 76.17, down 0.12% as of March 29, 2022, 6:57 AM PDT.

Three-Year Technical Price Chart (as of March 29, 2022, at 6:57 AM PDT). Source: REFINITIV, Analysis by Kalkine Group

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.