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Why Is Southern Copper (SCCO) Up 14.6% Since Last Earnings Report?

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A month has gone by since the last earnings report for Southern Copper (SCCO - Free Report) . Shares have added about 14.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Southern Copper due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Southern Copper Q3 Earnings, Revenues Beat Estimates

Southern Copper reported third-quarter 2020 adjusted earnings of 65 cents per share, which beat the Zacks Consensus Estimate of 57 cents. The figure improved 30% from prior-year quarter figure of 50 cents primarily owing to increased sales volumes, and higher silver and copper prices.

Net sales were $2,129 million, up 15% year over year. Moreover, the top line surpassed the Zacks Consensus Estimate of $1,975 million. Increased volumes of copper, silver, zinc and molybdenum, and higher silver and copper prices led to improved sales in the quarter. However, lower molybdenum prices were a drag.

Total operating costs rose 3% year over year to $1,185 million. Operating profit increased 32% to $944 million on higher sales. Adjusted EBITDA improved 24% year over year to $1,126 million in third-quarter 2020. Adjusted EBITDA margin was 53% compared with the prior-year quarter figure of 49%.

Operating Highlights

Copper: Southern Copper mined 246,560 tons of copper during the reported quarter, down 2.3% year over year. The downside was due to lower production at its Peruvian mines on account of lower ore grades. However, a 2.3% increase in production at the company’s Buenavista mine in Mexico somewhat offset the impact.

Molybdenum: The company mined 7,685 tons of molybdenum during the reported quarter, indicating year-over-year growth of 8%. Higher production at its Peruvian mines and La Caridad mines was negated by lower production from the Buenavista mine.
 
Zinc: The company’s zinc production was down 0.4% year over year to 17,198 tons in the quarter under review as higher production at the San Martin mine was offset by lower production at other IMMSA zinc operations.

Silver: Southern Copper’s silver production declined 1.3% year over year to 5,317,000 ounces. Lower production at the Toquepala, Buenavista and IMMSA operations was mitigated by higher production at La Caridad and Cuajone mines.

Financials

The company generated net cash from operating activities of $1,688 million in the first nine-month period of 2020 compared with $1,371 million in the prior-year comparable period driven by strong cash generation at operations, due to an increase in both sales volumes and cost control efficiencies.

Cash and cash equivalents were at $2,145 million at the end of third-quarter 2020 compared with $1,925 million as of fiscal 2019 end. Long-term debt was $6,543 million at the quarter end compared with $6,541 million as of 2019 end. The company made capital investments worth $349 million during the first nine-month period of 2020.

How Have Estimates Been Moving Since Then?

Since the earnings release, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted 10.48% due to these changes.

VGM Scores

At this time, Southern Copper has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision looks promising. Notably, Southern Copper has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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