Freeport (FCX) to Report Q4 Earnings: Is a Beat in Store?

Freeport-McMoRan, Inc.FCX is slated to release fourth-quarter 2016 results ahead of the bell on Jan 25.

Last quarter, the mining company delivered a negative earnings surprise of 31.58%. Freeport has beaten the Zacks Consensus Estimate in two out of the four trailing quarters, while missing in two, with an average negative surprise of 6.47%.

Let's see how things are shaping up prior to this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Freeport is likely to beat earnings because it has the right combination of two key ingredients.

Positive Zacks ESP:Earnings ESP , which represents the difference between the Most Accurate estimate, which stands at 36 cents per share, and the Zacks Consensus Estimate, which stands at 32 cents per share, is +12.5%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter

Zacks Rank: Freeport currently carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank of #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings estimates. The Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.

The combination of Freeport's Zacks Rank #3 and +12.5% ESP makes it likely for earnings to beat estimates this quarter.

Freeport-McMoRan Inc. Price and EPS Surprise

Freeport-McMoRan Inc. Price and EPS Surprise | Freeport-McMoRan Inc. Quote

Factors at Play

Freeport is taking steps to manage costs and capital spending amid a challenging operating environment. It also remains focused on deleveraging its balance sheet, partly through assets sale. Further, Freeport is investing in attractive growth projects and providing cash returns to its shareholders.

Freeport remains focused on reducing debt and enhance shareholder value, in part, through divestitures and joint venture transactions. Freeport's board has been making a strategic review of its oil and gas business to assess alternatives designed to increase value to the company's shareholders.

Freeport, last month, concluded the sale of its Deepwater Gulf of Mexico ("GOM") properties to Anadarko Petroleum Corporation for $2 billion in cash. The sale of the GOM assets will aid Freeport to cut debt and allocate resources to its core copper business. Recently, the company also sold its onshore California oil and gas properties to Sentinel Peak Resources California LLC for cash consideration of $592 million (before closing adjustments) and contingent consideration of up to $150 million.

Freeport expects to receive $5.2 billion in gross proceeds during fourth-quarter 2016 from the sale of its assets. The company continues to assess its portfolio for potential future actions and aims to maintain a strong financial position, with focus on reducing debt.

Freeport also remains actively focused on managing costs. Benefits of the company's ongoing cost-cutting initiatives were evident in the third quarter, manifested by a year-over-year decline in consolidated average unit net cash costs of copper. Freeport's copper cost guidance for 2016 reflects a considerable year-over-year decline in consolidated unit net cash costs. In its oil and gas business, the company also reduced production cost to $15 from $19 a barrel in the last reported quarter.

Freeport is also focused on exploration activities near its existing mines with a focus on opportunities to expand reserves that will support the development of additional future production capacity in the large minerals districts where it currently operates. Per the International Copper Association, the demand for copper is expected to increase significantly primarily due to higher demand in China. The company is also expected to benefit from an expected rise in the price of copper, as indicated by the World Bank.

However, Freeport's copper business remains affected by the sluggish global economy and supply related issues. Moreover, the Grasberg minerals district, the most significant operating asset for Freeport, is exposed to Indonesian political, economic and social uncertainties.

Freeport has outperformed the Zacks categorized Mining-Non Ferrous industry in the last three months. The company's shares gained 52.4% while the growth recorded by the industry was 22.1%.

Stocks That Warrant a Look

Here are some other companies in the mining industry you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter too:

Vale S.A. VALE has an Earnings ESP of +104.76% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here.

Cliffs Natural Resources Inc. CLF has an Earnings ESP of +4.55% and a Zacks Rank #2.

Coeur Mining, Inc. CDE has an Earnings ESP of +54.55% and a Zacks Rank #3.

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Cliffs Natural Resources Inc. (CLF): Free Stock Analysis Report

VALE S.A. (VALE): Free Stock Analysis Report

Freeport-McMoran, Inc. (FCX): Free Stock Analysis Report

Coeur Mining, Inc. (CDE): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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