Freeport Beats Earnings, Sells Off On China Tightening

Freeport-McMoRan Copper & Gold Inc. (FCX) handily beat earnings estimates when it reported last Thursday before the bell. The world’s largest copper miner reported Q4 earnings of $2.15 / share on revenues of $4.6 billion. These numbers significantly outpaced the Street’s estimates of $1.63 / share on revenues of $4.04 billion. However, FCX became little more than the latest in an ever-stretching line of companies to report great quarters only to see their shares plunge on the good news.

For Freeport, it was news out of China that did them in. Indeed, it was good news out of China that had helped shares rally over 300% since the March lows, but on Thursday leaders of the command economy announced intentions to rein in the behemoth, primarily through tightening lending programs. While S&P reiterated its Buy rating on the name, Goldman announced Friday morning that they were cutting FCX, as well as the entire mining sector, from Buy to Neutral. I would recommend listening to the latter.

Shares lost 8.7% the day of the earnings announcement on huge volume. This dismal performance was followed up by an additional loss of 2.7% on Friday, again on very high volume. Such volume could not accrue without heavy institutional selling.

Freeport closed the week at $74.23, down 18% from its 52-week high of $90.55, which it hit barely two weeks ago on Jan. 11th. Shares cut through their 50-day moving average on Thursday like it wasn’t even there, and closed Friday right at a support level that it last tested in early November. If it breaks through, the next support level appears to be in the $60 – $64 range, as delineated below. This whole sector is on shaky ground right now, and I would not recommend getting in unless you see a significant reversal in sentiment. If anything, as long as the news out of China maintains its bearish tone, this stock could be a decent short on any further market weakness.

Disclosure: No positions in FCX.

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