Freeport-McMoRan Bull Vs. Bear Battle: Upgraded At Citi, Downgraded At Bank Of America

Shares of Freeport-McMoRan Inc (NYSE: FCX) were trading higher Monday morning following mixed news as shares were upgraded at Citigroup and downgraded from analyst at Bank of America.

Bank Of America: Bleak Near-Term Outlook

Oscar Carbera of Bank of America downgraded shares to Underperform from Neutral with a price target lowered to $19 from a previous $22.50, due to a "bleak" near-term commodities outlook.

Carbera noted the downgrade stems from Bank of America's commodities analyst 10-16 percent lower 2016-2017 copper and 2017-18 Brent oil price estimates. As such, the analyst lowered Freeport's 2015-2017 total free cash flow estimate by 45 percent to $2.7 billion.

Moreover, Carbera lowered his fiscal 2015 earnings per share estimate by 9 percent to $0.61 in addition to 2016's earnings per share estimates which were slashed by 11 percent to $0.71. However, the analyst added that there may be a "light at the end of the tunnel" in 2017 driven by Cerro Verde expansion and Grasberg.

Citigroup: Appealing Valuation

Brian Yu of Citigroup upgraded shares to Buy from Neutral with a price target raised to $23 from a previous $19 as shares are trading at an "appealing" valuation.

Yu noted shares of Freeport are down 22 percent year-to-date and the risks going forward are "positively skewed." The analyst added that the company is in a financially better position to weather weak commodity pricing following a recent dividends cut.

Yu said he expects the company to generate "substantial" free cash flow, especially if copper and oil prices bottom out in the first half of 2015 and then recover. A healthier cash flow will allow the company to more rapidly reduce its debt load over the next several years as project capex wanes.

The analyst further explained why valuation is appealing:

"Our previous target price of $19 was based on a target 5.4x 2015E EV/EBITDA and 14x 2015E P/E. Freeport currently trades at 4.5x our 2016E EBITDA and at 5.6x on spot prices versus an average forward multiple of 5.8x in recent years. This was before they acquired their oil & gas assets, which should arguably trade at a higher multiple based on trough earnings and organic growth potential."