Valued at a market cap of $88.2 billion, Southern Copper (SCCO) is among the largest mining stocks globally. It is engaged in the development, production, and exploration of industrial and base metals, such as copper (HGK24), zinc, and silver (SIK24).
Shares of the mining giant have surged 34% in 2024 due to rising copper prices. The recent rally means Southern Copper stock has returned close to 250% to shareholders in the last five years, after adjusting for dividends.
Let’s see if the stock can move higher, or if Southern Copper is overvalued at the current multiple.
Demand for Copper is Forecast to Remain Strong
Copper prices have been on an absolute tear in 2024, fueled by rising demand alongside supply risks. Earlier today, copper for May delivery set a new high of $4.485 per pound, the highest level in nearly two years.
The demand for copper is often considered to be a proxy to evaluate the health of the global economy. That's because the base metal is used in several industrial applications, such as electric vehicles (EVs), power grids, and wind turbines - placing copper at the epicenter of the energy transition.
Analysts remain bullish on copper, as Citi (C) expects prices to surge to $10,000 per metric ton by the end of 2024 and to $12,000 in 2026. Moreover, Bank of America (BAC) raised the price target for copper to $9,321 for 2024.
Is Southern Copper Stock a Good Buy Right Now?
Southern Copper operates copper mines in Peru and Mexico, and is the fifth largest copper producer globally. Moreover, Southern Copper currently holds the biggest reserves of the essential metal, providing it with significant opportunity to meet rising demand across the next two decades.
In fact, the company expects to increase production levels by 84% between 2022 and 2032. To meet its ambitious goals, Southern Copper has approved multiple expansion projects that should drive future cash flows higher, as it looks to invest close to $2 billion annually to expand production numbers.
In 2023, Southern Copper reported revenue of $9.89 billion and EBITDA (earnings before interest, tax, depreciation, and amortization) of $5.03 billion, indicating a margin of more than 50%.
Is SCCO Stock Overvalued?
Out of the seven analysts covering Southern Copper, only one recommends “strong buy,” and one recommends “hold.” Beyond that, one recommends “moderate sell” and four more recommend “strong sell,” for an average rating of “moderate sell.”
With a mean price target of $80.75 - 30% below Thursday's close - it's evident that Wall Street is bearish on SCCO stock.
That said, analysts expect the copper miner to increase sales by 8.3% to $10.72 billion in 2024, and by 13.2% to $12.1 billion in 2025. Comparatively, its adjusted earnings are forecast to expand from $3.14 per share in 2023 to $3.66 per share in 2024, and $4.77 per share in 2025.
Priced at 31.4 times forward earnings, the mining stock is not too expensive at current levels, given its growth estimates.
Additionally, in the last year, Southern Copper has paid shareholders $3.80 per share in dividends, indicating a yield of more than 3.5%.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
