Copper Just Soared to an All-Time High, but This Stock Is Still a Great Value

The price of copper recently hit an all-time high, helping lift the stock of copper miner Freeport-McMoRan (NYSE: FCX). For short-term traders, that kind of news might be a cause for caution. But unless you have a strong view that copper will decline markedly from here, the stock continues to look highly attractive. Here's why.

Copper soars to a new high

The chart below shows just how well the metal has performed in recent years and the strength of its recent run.

Data source: S&P Global Market Intelligence.

The strength in the copper price supports the case for Freeport-McMoRan stock even if you take an agnostic view of the price of copper. For example, management always lays out its earnings and cash flow sensitivities to copper prices on its earnings calls. Here are the latest estimates for the 2027/2028 period.

Data source: Freeport-McMoRan presentations. Table by the author. EBITDA = Earnings before interest, taxes, depreciation, and amortization.

To put them into context, the current price of copper is $6.51, which translates to about $18.25 billion in earnings before interest, tax, depreciation, and amortization (EBITDA) and $14 billion in operating cash flow (OCF). Based on these figures, Freeport-McMoRan will trade on an enterprise value, or EV (market cap plus net debt), to an EBITDA valuation of 6.8 times in 2027/2028. Moreover, capital spending of roughly $4.5 billion (in line with Wall Street analyst estimates) and free cash flow (FCF) of about $9.5 billion will put it at 11.2 times FCF in the same period.

Both are very attractive multiples. For example, here's a look at the commonly used EV/EBITDA valuation multiple: The 6.8x value is clearly lower than the average EBITDA multiple of 9.01x over the last decade.

Data source: S&P Global Market Intelligence.

More than just a valuation story

Valuation and numbers are one thing, but most investors want to believe in them, including the price of copper and the company's ability to profit from it. The case for copper combines an ongoing shift in structural demand for copper, following an extended period of underinvestment in global copper mines, with a deterioration in copper ore grades.

The increase in demand comes from the metal's exposure to the electrification-of-everything megatrend, which includes electric vehicles, renewable energy, AI data centers, and the grid networks needed to power them.

As this explosive demand has grown, it's become increasingly difficult for miners to secure greenfield mining permissions before even considering production. According to some estimates, it can take almost 18 years for a discovery to become a producing mine.

Image source: Getty Images.

Why Freeport-McMoRan stock is attractive

All of this raises the question of why Freeport-McMoRan is well-placed to benefit. The answer is threefold. First, the company has a low-cost leaching initiative (recovering copper from existing stockpiles), which management believes will produce 800 million pounds of copper per annum, compared to its current overall production of 3.1 billion pounds.

Second, the miner is set to rapidly expand production over the next few years as it brings production in Grasberg, Indonesia, back online following an incident in 2025. Management estimates copper production will grow from 3.1 billion pounds in 2026 to 4.1 billion pounds in 2028.

Third, the miner has several brownfield expansion projects in its pipeline, including in the U.S. One of these is in Bagdad, Arizona, which management believes could double production at the mine, adding up to 250 million pounds of copper per annum in a few years. An investment decision is expected by the end of the year. It's also planning expansions at the mine in the Safford and Lone Star district in Arizona, and at El Abra, Chile.

Is the stock a buy?

All told, the stock looks like a good value for copper bulls and those agnostic in the commodity's pricing alike. While there's no guarantee that copper prices will remain high and mining activity isn't without operational risk, Freeport-McMoRan is well placed to ride the wave of favorable end-market conditions.

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.