Opinions
Bill Harris, CFA
Hudbay Minerals
HBM-T
COMMENT
Mar 11, 2024
Stock price when the opinion was issued
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Copper's been all over the place, and really down lately on a weaker China. Whole copper complex trades at a premium because they know there's this thirst for copper amid shortages. Materially paid down debt. Trades at discount (4.8) to large-cap peers (5.6). He models 40% EPS at a 31 PE.
Was risky, de-risked to a large extent. Copper's not for the faint of heart. A whippy player, but a winner if it continues to execute well and copper does well.
HBM focuses on copper, gold and zinc production with primary production in Peru and Canada. It has benefited from both rising production and prices. Management has used the growing free cash flow to de-lever its balance sheet, while growing cash reserves. We recommend setting a stop-loss at $9, looking to achieve $16 -- upside potential of 28%. Yield 0.1%
(Analysts’ price target is $15.82)We reiterate this Canadian producer of copper and gold with holdings extending into South America as a TOP PICK. We like that cash reserves are growing, while debt is retired. It trades at 11x earnings and 1.5x book. We recommend trailing up the stop (from $9) to $10, looking to achieve $16 -- upside potential of 27%. Yield 0.1%
(Analysts’ price target is $16.40)Tough to answer whether to buy. Impressive beat last quarter, much stronger outlook, markedly higher output in Manitoba, affirmed production guidance, positive free cashflow for 5th consecutive quarter. Nice growth. Not pricey at 18.5x 2025 earnings.
Depends on your view of copper. If you think it's going higher (partly due to Trump and partly to lackluster China), then the better view is yes, buy. He's a copper bull over time.
Our PAST TOP PICK with HBM has triggered its stop at $11. To remain disciplined, we recommend covering the position at this time. This will result in a net investment loss of 12%, when combined with our previous guidance.
It has some very good assets but it is hard to figure out just what it is going to do. Copper didn't come off as expected and is still quite strong. He likes Lundin in the mining space and it fits into his income strategies. He also likes Encore Wire (WIRE), the largest copper recycler in the U.S. and is not a depleting resource business. It trades at a reasonable multiple and its growing consistency takes out the volatility. It has $1/2 billion in cash and is buying back stock.