Tag: S&P Global

Copper's Role in the Clean Energy Boom: Stocks to Watch

Posted on by The INO.com Team

Copper has been a hot commodity, driving the transition to a cleaner, greener future. Its unique properties, like high conductivity and durability, make it indispensable in everything from renewable energy projects and drinking water infrastructure to advanced electronics and data centers. From wind turbines harnessing nature's power to electric vehicles (EVs) transforming transportation, copper is at the core of it all.

The red metal's importance is so pronounced that it's often called "Doctor Copper,” a barometer of economic health due to its close ties with industrial production. As of writing, copper's spot price is $3.95 per pound, up from $3.86 per pound at the start of the year. Analysts expect the price to climb even further, reaching between $4.30 to $4.80 per pound by the end of 2025.

According to S&P Global, the global push for electrification and clean energy is set to double U.S. copper demand by 2035. This ‘metal of electrification’ is essential for reaching net-zero carbon emissions by 2050, needed for everything from wind and solar power to electric vehicles and data centers. Moreover, an extra 1.5 million metric tons of copper will be required by 2035 for energy transition alone, bringing total U.S. consumption to 3.5 million tons, a 112% increase from 2023.

Globally, copper mine production was approximately 22 million metric tons in 2023, up from 16 million metric tons in 2010. Projections suggest that production will reach 30 million metric tons by 2036, but this increase may fall short of the anticipated surge in demand.

Despite this, more copper is available today than ever, thanks to recycling efforts. Over 30% of global copper demand in the past decade has been met through recycled copper. Future policies and technologies will continue to improve resource efficiency in mining and recycling, ensuring copper's role in sustainable development.

Moreover, the global copper market is expected to reach around $548.20 billion by 2034, expanding at a CAGR of 5.1% from 2024 to 2034.

So, we believe there could be no wiser move than investing in copper to ride on this rising demand. Here are three copper stocks that could be worthy of adding to your watchlist: Southern Copper Corporation (SCCO), Freeport-McMoRan Inc. (FCX), and Teck Resources Limited (TECK).

Southern Copper Corporation (SCCO)

Southern Copper Corporation (SCCO) is a leading mining giant based in Phoenix, renowned for having the world’s largest copper reserves. While copper is its core business, Southern Copper extracts valuable by-products like silver, zinc, and molybdenum.

This diversification, while significant, doesn’t overshadow its primary reliance on copper, which accounted for aboutc in the second quarter of 2024. The company reported a 6.6% rise in copper production to 242,474 tons during the same quarter. For 2024, SCCO aims to produce 963,000 tons of copper, a 6% increase from the previous year.

In the second quarter (ended June 30, 2024), the company’s net sales increased 35.5% year-over-year to $3.12 billion. Also, its net income attributable to SCCO came in at $950.20 million or $1.22 per share, reflecting an increase of 73.6% and 71.8% from the prior year, respectively.

Street expects SCCO’s revenue and EPS for the current year ending December 31, 2024, to increase 19.3% and 47.2% year-over-year to $11.80 billion and $4.57, respectively. Shares of SCCO have gained over 37% over the past nine months and nearly 14% year-to-date.

The recent uptick in copper prices has not only bolstered the company’s market performance but also enabled it to reward its shareholders. Last month, the company announced a dividend of $0.60 per share, payable on August 26, 2024. At its current share price, the stock offers an attractive dividend yield of 2.4%, appealing to income-focused investors.

Freeport-McMoRan Inc. (FCX)

Next up is Freeport-McMoRan Inc. (FCX), a leading international mining company with a diverse portfolio of assets and some of the world’s largest copper, gold, and molybdenum reserves. Headquartered in Phoenix, Arizona, Freeport-McMoRan operates major sites like the Grasberg minerals district in Indonesia and mining operations in North and South America, including Morenci and Cerro Verde.

Last month, the company achieved a significant milestone with its Indonesian subsidiary, PT Freeport Indonesia, by commissioning a new copper smelter, crucial for expanding Grasberg’s operations. FCX is on track to ramp up to full capacity by the year’s end.

For the second quarter (ended June 30, 2024), FCX’s net sales grew 15.5% from the year-ago value to $6.62 billion. The company’s net income amounted to $616 million and $0.42 per share, indicating a 79.6% and 82.6% year-over-year increase, respectively.

It produced 931 million pounds of copper in the second quarter and expects total production of about 4.1 billion pounds for 2024, including 1.0 billion pounds in the third quarter alone.

Thanks to its strong cash flows, the company paid its shareholders a dividend of $0.15 per share on August 1, 2024. With a payout ratio of 41.7% and a forward dividend yield of 1.52%, Freeport offers investors a compelling mix of income and growth potential. FCX has a four-year average yield of 1.05%, and its dividend payouts have grown at a CAGR of 25.9% over the past three years.

With strong copper prices and a solid demand outlook, analysts predict a 14.6% increase in revenue and a 9.6% rise in EPS for the fiscal year ending December 31, 2024. FCX’s stock has surged more than 16% over the past nine months, reflecting its strong market position.

Teck Resources Limited (TECK)

Teck Resources Limited (TECK) is a leading Canadian resource company that supplies metals essential for global development and the energy transition. With top-tier copper and zinc operations and an industry-leading copper growth portfolio, the company is committed to responsible growth, delivering value, and ensuring long-term business resiliency.

In early July, TECK completed the sale of its remaining 77% interest in its steelmaking coal business to Glencore plc. This strategic move positions Teck Resources as a pure-play energy transition metals company with a strong focus on copper.

TECK’s revenue for the second quarter ended June 30, 2024, came in at CAD$3.87 billion ($2.82 billion), up 10.1% year-over-year. The company achieved a record quarterly copper production of 110,400 tonnes, with 51,300 tonnes from Quebrada Blanca (QB).

Its adjusted EBITDA grew 12.9% from the year-ago value to CAD$1.67 billion ($1.21 billion), driven by robust copper production and surging prices. Further, its adjusted profit from continuing operations attributable to shareholders was CAD$413 million ($300.22 million), or $0.79 per share.

For the current year ending December 31, 2024, TECK’s revenue and EPS are projected to reach $9.98 billion and $1.89, respectively. Over the past nine months, the stock has gained 23.2%.

With proceeds from the coal business sale, TECK’s Board authorized up to a $2.75 billion share buyback and approved a dividend payment of $0.625 per share, including a $0.50 supplemental dividend, payable on September 27, 2024. This, along with a $500 million buyback announced in February, brings total shareholder returns to $3.5 billion from the sale.

Teck offers an attractive proposition for income-oriented investors, with a four-year average dividend yield of 1.34%. Additionally, its dividend payouts have grown at CAGRs of 32.6% over the past three years and 19.6% over the past five years, making it a compelling choice for those seeking exposure to the copper sector.

Bottom Line

As the world pushes for a greener future, copper's pivotal role in renewable energy, EVs, and advanced electronics makes it a vital commodity to watch. Companies like SCCO, FCX, and TECK are well-positioned to benefit from this surging copper demand. These dividend-paying stocks offer stable returns and are poised to power a sustainable future, making them worthy of your portfolio's attention.

Earnings Season Preview: What Lies Ahead for Banking Stocks?

Posted on by The INO.com Team

Financial institutions offer various consumer financial services, encompassing current and savings accounts, online payment options, credit and debit card facilities, residential and commercial lending options, insurance coverages, and investment portfolio management. Robust consumer spending and business investment activities propel demand for these financial services.

The third-quarter earnings season will kick off with big banks this week. As banking and finance sector giants JPMorgan Chase & Co. (JPM), BlackRock, Inc. (BLK), WaFd, Inc (WAFD), and Unity Bancorp, Inc. (UNTY) prepare to release their results, we look at what analysts expect and what could shape their prospects.

Before delving into the financial prospects of these stocks, let’s discuss the factors influencing the industry’s trajectory.

The financial sector, particularly the banking segment, has demonstrated signs of stabilization following the turmoil induced by the collapse of the regional banks. The recovery coincides with the Federal Reserve's benchmark interest rate hikes to its peak in over two decades, aiming at alleviating inflationary pressures.

In September, record-breaking 334,000 nonfarm payroll additions surpassed economists' forecasts and brought increased potential for further rate increases. This comes as an overheated job market must be balanced by cooling inflation to achieve a desirable economic "soft landing." Higher interest rates could prove advantageous to banks, typically resulting in higher net interest income.

However, the market sentiments surrounding banking stocks have been negatively impacted by the downgrades and warnings issued by top rating agencies — Moody's and Fitch. These actions have gravely spotlighted investors' anxieties concerning the industry's stability and future. Similarly, S&P Global reduced its credit ratings and outlook for several U.S. regional banks, marked by their considerable commercial real estate (CRE) exposure.

This action could lead to increased borrowing costs for the banking sector, battling to recover from previous upheavals. Furthermore, with the Fed’s interest rate hikes raising borrowing costs, banks find themselves in a situation where they must offer higher interest on deposits to retain customers considering more lucrative alternatives.

In the forthcoming weeks, the financial sector, representing more than 40% of the S&P 500 members, is set to dominate market discourse, as it is slated to reveal third-quarter earnings. According to a Factset article, the sector is predicted to record the fourth-highest quarterly earnings growth rate at 8.7% among 11 sectors.

The banking industry is anticipated to report the third-highest annual earnings growth rate at 4%. Diversified Banks are expected to achieve an earnings growth of 7% on a sub-industry level, whereas Regional Banks may report a 15% decline in earnings. Within the Capital Markets industry, Asset Management and Custody Banks are projected to record earnings growth.

Let’s now comprehend some factors that could influence the featured stocks in the near term:

JPMorgan Chase & Co. (JPM)

JPM has proven its robustness and keen strategic foresight in the past few years, preparing tactically for a high-interest rate environment by stockpiling cash starting in 2021. Their fiscal prudency awarded them an advantageous position to acquire First Republic Bank under desirable terms following its seizure by federal regulators earlier this year.

The second quarter saw a surge in JPM's revenue and net income, boosted by higher interest rates and the well-timed acquisition of First Republic Bank. These successful endeavors are testaments to the bank's competent management and foresight.

Looking forward to the imminent week, JPM is expected to exceed expectations with its third-quarter earnings – a result of excellent performance across its primary business sectors.

According to data compiled by Bloomberg, the banking giant stands ready to record the fastest earnings-per-share growth compared to other major U.S. investment banks this reporting season.

The slump in trading revenues and investment banking fees was offset by the bank's net interest income increase of 27% during the quarter. According to Piper Sandler, despite persistently high interest rates, the bank might surpass its annual net interest income guidance.

For the fiscal third quarter ending September 2023, JPM’s revenue and EPS are expected to increase 20.2% and 24.8% year-over-year to $39.31 billion and $3.89, respectively.

Beyond these impressive forecasts, it is noteworthy that JPM surpassed consensus revenue and EPS estimates in each of the trailing four quarters.

BlackRock, Inc. (BLK)

BLK is recognized globally as a top-tier provider of investment, advisory, and risk management solutions, risks facing adversity due to escalating interest rates. An upward trajectory in interest rates stands to diminish the demand for bonds and fixed-income securities, which serve as substantial income generators for BLK.

As interest rates climb, bond prices take a downturn, prompting investors to explore other asset classes or seek out richer yields in alternative locations. This scenario can potentially depress the value of BLK’s assets under management (AUM) and any fees garnered from managing these assets.

Further concerning is that BLK leans heavily on debt to fuel its operations and fund acquisitions. As of June 30, 2023, the firm registered $7.96 billion in total long-term borrowings. For the six months that ended June 30, 2023, BLK paid approximately $89 million in interest on long-term notes.

The firm's EPS is projected to take an 11.5% year-over-year plunge to $8.45 for the fiscal third quarter ending September 2023 as it grapples with decelerating institutional flows and the impacts of foreign-currency headwinds.

On a brighter note, the company’s revenue for the same quarter is forecasted to increase 5.6% year-over-year to $4.55 billion. The company topped consensus EPS estimates in the trailing four quarters and consensus revenue estimates in three of the trailing four quarters.

WaFd, Inc (WAFD)

Regional bank WAFD offers various financial products and services, encompassing current and savings accounts, mortgages, loans, and investments.

A potential rise in interest rates could boost the bank’s net interest income, as evidenced by its third-quarter net interest income results that reached $168.70 million, marking an 11.2% year-on-year increase.

Over the past three years, the bank has achieved impressive growth, with EPS escalating by 18.3% CAGR. If WAFD maintains this trajectory, shareholders should be thoroughly satisfied.

Furthermore, over the past three years, the company's revenue and net interest income expanded at CAGRs of 9% and 13.8%, respectively, highlighting the solid caliber of WAFD’s growth.

One point of concern lies in the bank's substantial reliance on debt. For the last reported quarter that ended June 30, 2023, WAFD reported borrowings of $3.60 billion at an interest rate of 3.76%.

Moreover, for the fiscal fourth quarter ending September 2023, WAFD’s revenue is anticipated to decline 4.3% year-on-year to $180 million, while EPS is expected to decline 16.2% year-over-year to $0.90.

Unity Bancorp, Inc. (UNTY)

UNTY, a community-oriented bank in Clinton, New Jersey, is well-positioned to capitalize on its robust fundamentals, solid loan and deposit balances, and diverse fee-income sources.

It is a conservatively managed organization that has constantly been acknowledged as a top-tier community bank. Although not exempt from the challenges faced by the broader banking sector, UNTY seems well-prepared to confront these difficulties while retaining the confidence and favor of the communities it serves.

The bank's revenue and net interest income expanded at CAGRs of 14.8% and 17%, respectively, over the past three years, justifying its strong growth trajectory.

UNTY's main earnings source, net interest income, decreased marginally sequentially by $0.4 million to $23.5 million. The decline was due to the cost of interest-bearing liabilities rising faster than the yield of interest-earning assets, causing a slight decrease in net interest margin to 4.04%.

Mixed analyst estimates about the company’s potential are evident as UNTY’s EPS is expected to decline 4.3% year-on-year to $0.89, while its revenue is expected to increase 1.2% year-over-year to $25.15 million for the fiscal third quarter ending September 2023. Moreover, the stock has topped the consensus EPS and revenue estimates in three of the trailing four quarters.

Furthermore, UNTY experiences rapid growth and has strategically chosen to pay out a minimal fraction of its earnings as dividends to shareholders, opting instead to reinvest back into the business. This approach promises to generate significant value for investors over time. Over the past three and five years, UNTY's EPS has grown at CAGRs of 22.4% and 19.2%, while dividend payouts grew at 13.7% and 12.6% over the same periods.