Southern Copper Corp. (SCCO) informed its shareholders about a payment of a quarterly dividend of 40 cents per share.
The dividend will be paid to the holders of the stock on Aug. 21. Investors who are interested must be on the company’s record no later than Aug. 8. The ex-dividend date is Aug. 7. The third dividend of 2018 is a 33.3% increase from the previous one.
The continued strengthening of the U.S. dollar together with tariff threats are weighing on metals and pushed copper down to $2.74 per pound, which is a 9.3% decline from the year-to-date average and a 7.3% decrease from the last month average price.
As a result, Southern Copper is downtrending. For the 52 weeks, Southern Copper has climbed 15% to $43.60 per common share.
The stock is now trading plainly below the 200, 100 and 50-SMA lines. The stock is trading $6.50 per share from the 52-week low of $37.13 per share and is $14.50 or 33.3% far from the 52-week high of $58.09 per share.
The stock is trading its book value per share at 5.4 times and the enterprise-to-earnings before interest, taxes, depreciation and amortization, or Ebitda, is 11.05 times. When we compare to industry medians, we can clearly see that, despite last month’s significant decline in the market value, the stock is still a bit expensive. The industry has a median price-book ratio of 2.06 times and a median Ev-to-Ebitda ratio of 9.9 times.
The recommendation rating is 3.6 out of a total of 5. As of July, two of 12 analysts suggested a Buy. A total of five analysts recommended a 'Hold' and one analyst believes that now is the time to dispose of the stock. There are also four analysts who foresee an underperforming stock over the next 52 weeks of trading.
The average target price is $47.25 per share. That is an 8.4% stock appreciation from the current market valuation. The average target price is a mean of 8 estimates. The estimates range between a low of $43 and a high of $57 per share price target.
Attractive stock
Southern Copper is a quality company in the mining industry and an attractive stock. The company reported an Ebitda margin of 50.8% compared to an industry median of nearly 25%. The company outpaced the industry over the last 12 months of business. That was because the management is wisely executing on output expansion, cost reduction and capital programs.
The company is targeting a global production of the red metal well beyond 25 million metric tons in 2020.
Expectations of a favorable commodity stem from a positive outlook on copper demand. The red metal will be in high demand across a number of innovative solutions in the technological applications, renewable energy, telecommunications, electronics and building and construction industries.
The Peruvian Michiquillay project in Cajamarca, which was acquired by Southern Copper in February for $400 million, will start to deliver in 2025 at a pace of a yearly production of copper of 225,000 tons. That is over more than 25-years of the initial life of the mine.
Southern Copper expects to strengthen its leadership as a low-cost producer, since at Michiquillay the red metal will be produced at a competitive cash-cost. This is the long-term catalyst.
Southern Copper Corp is one of the largest gold producers in the industry.
A wait approach
The company is a stock that investors should consider in order to prepare a defensive approach during a bear market, which is on the horizon according to several equity strategists.
Investors must also know that Southern Copper has enough belts and suspensions to go against slowdowns and economic recessions. GuruFocus has assigned the company a financial strength rating of 6 out of 10.
IÂ agree with analysts who recommend investors to wait for a negative tailwind that will push down the market value of the stock. A $39 share price is the target I would set as a good entry point for Southern Copper.
A significant drop is expected to increase the current forward dividend yield of 2.58% to 3.1% It may occur before the company releases the results on the second quarter of fiscal 2018.
With a 15.3% year-over-year growth to $3.02 per pound in the second trimester of 2018, chances of upsides in the market value following a positive surprise on earnings and sales are very high.
Second-quarter results may also have been positively impacted by the conclusion of the Peruvian Toquepala expansion project in Peru. From Toquepala, Southern Copper plans to add 100,000 tons of copper to the company’s annual production capacity. If everything goes as predicted, the annual copper production will reach 1 million tons.
Operating and financial results for the second-quarter of fiscal 2018 are estimated to be published on August 1.
Consensus is for an earnings per share of 58 cents on revenue of $1.83 billion. A year ago, the company closed the comparable with an EPS of 39 cents. Sales are expected to be 19.5% higher than 2017.
About Southern Copper
Southern Copper is a Mexican mining company. It operates facilities in South America, Peru and Mexico in order to produce copper and molybdenum concentrates. It is also engaged in smelting and refining operations to produce blister, anode copper from concentrates and copper cathodes.
The company also produces zinc and silver. However, the sale of the red metal accounts for approximately 85% of its total revenue.
Over the last five years, the company saw the annual production of copper increase at an average rate of 10.8% a year to 913,066 tons of concentrate in 2017.
(Disclosure: I have no positions neither in Southern Copper Corp nor in copper futures.)
