On Friday, UBS initiated coverage on Southern Copper Corporation (NYSE:SCCO) with a Neutral rating and a price target of $120.00. The firm's stance comes after observing the cautious approach of the street towards the company due to its valuation, with about 60% of analysts maintaining a Sell rating over the past two years.
The report highlighted that Southern Copper, along with its peers in the high-quality copper stocks category, has experienced a re-rating of 20-40% in the last two years, now trading at a premium compared to the sector. This premium is expected to continue, supported by the favorable medium-term fundamentals of the copper market.
Southern Copper is recognized for its advantageous position, owning long-life, low-cost copper assets, and maintaining a strong balance and straightforward corporate structure. Additionally, the company's growth potential is underscored by its extensive resources and project pipeline.
The analysis by UBS suggests that the current risk-reward balance for Southern Copper is even, considering the stock's 65% increase over the past 12 months. However, the firm anticipates copper prices to stabilize in the next three to six months until the physical market tightens. It also notes the heightened political risks in Mexico and Peru, where Southern Copper operates.
In other recent news, Southern Copper Corporation has announced the resumption of construction for the Tia Maria project in Peru. This decision follows discussions with the Peruvian government, focusing on regional and national interests. Concurrently, the company reported a strong first quarter with earnings per share (EPS) of $0.95 and revenue of $2.6 billion, exceeding analyst estimates.
Global investment banking firm Jefferies has increased its price target for Southern Copper to $137, citing the company's operational strength and progress on the Tia Maria project. However, Scotiabank has revised its outlook, lowering its price target to $54, but anticipates an increase in the company's earnings before interest, taxes, depreciation, and amortization (EBITDA) from 2024 through 2026.
In regards to other developments, the surge in illegal mining operations in Peru has led to increased traffic congestion along the country's crucial mining corridor highway. This has posed challenges to the Peruvian government's efforts to boost investment and production in the sector.
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