Please ensure Javascript is enabled for purposes of website accessibility

Why Freeport-McMoRan Inc's Shares Popped 10% Today

By Travis Hoium - May 16, 2016 at 12:22PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

An analyst upgrade was a catalyst today, but investors should be looking at moves made last week.

Image source: Freeport-McMoRan. 

What: Shares of Freeport-McMoRan Inc (FCX -0.23%) jumped as much as 10% on Monday as investors began to reassess the company's risk profile and an analyst upgraded the stock.

So what: Late last week, Noble (NEBLQ), who owns offshore drilling rigs, has agreed to take $600 million in payment to allow Freeport-McMoRan to cancel two drilling contracts worth $800 million. Noble has said it will take stock as part of the transaction, and Freeport-McMoRan made a filing with the SEC today that outlined $540 million in share transfers to Noble. This will help free up the company's balance sheet and reduce future spending obligations. 

On top of this added certainty, analysts at Cowen reiterated their outperform rating on company's stock and raised their price target from $10 to $15 per share.  

Now what: Analyst upgrades can sometimes lead to short-term pops in a stock, but that's not what investors should be focused on today. Freeport-McMoRan has made a number of moves this year to shore up its balance sheet and build a bridge to the future, including the sale of a copper mine stake last week. So, while issuing shares to Noble, as the current plan outlines, is going to be highly dilutive to shareholders, it may also allow the company to survive a little longer. It may be a high price to pay, but given the low commodity price environment we're in today, it's a risk worth taking.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Freeport-McMoRan Inc. Stock Quote
Freeport-McMoRan Inc.
$30.71 (-0.23%) $0.07
Noble Corporation plc Stock Quote
Noble Corporation plc

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.