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Why Is Southern Copper (SCCO) Up 16.8% 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 16.8% 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 its most recent earnings report in order to get a better handle on the important drivers.

Southern Copper Q4 Earnings & Sales Beat, Rise Y/Y

Southern Copper reported fourth-quarter 2020 earnings of 76 cents per share, which beat the Zacks Consensus Estimate of 69 cents. The bottom line also marked an improvement 90% from prior-year quarter figure of 40 cents primarily owing to higher volumes, and rising prices for copper, silver and zinc.

Net sales were $2,351 million, up 27% year over year. The top line also surpassed the Zacks Consensus Estimate of $1,969 million. Higher volumes, and rising prices for copper, silver and zinc were instrumental in driving the upside.

Total operating costs went up 5% year over year to $1,284 million. Operating profit surged 69% to $1066 million on higher sales. Operating margin in the reported quarter was 45.4% compared with 34.1% in the prior-year quarter. Adjusted EBITDA increased 59% year over year to $1,254 million in fourth-quarter 2020. Adjusted EBITDA margin was 53.3% compared with the year-ago quarter figure of 42.4%.

Operating Highlights

Copper: Southern Copper mined 259,744 tons of copper during the reported quarter, up 1.3% year over year. Higher production at all its mines barring the Toquepala mine led to the year-over-year improvement.

Molybdenum: The company mined 7,554 tons of molybdenum during the reported quarter, indicating year-over-year decline of 4%.

Zinc: The company’s zinc production declined 17.7% year over year to 16,763 tons in the quarter under review.

Silver: Southern Copper’s silver production decreased 4.5% year over year to 5,406,000 ounces.

Financials

Southern Copper generated net cash from operating activities of $2,783 million in 2020 compared with $1912 million in the prior-year quarter. Increase in copper and precious metals prices, higher sales volumes and cost control efficiencies led to strong cash generation.

Cash and cash equivalents were at $2,183.6 million at the end of 2020, up from $1,925 million as of 2019 end. Long-term debt was $6,544 million at the 2020 end compared with $6,541 million as of 2019 end. The company made capital investments worth $592 million during 2020.

On Jan 21, 2021, Southern Copper’s board of directors authorized a dividend of 60 cents per share payable on Feb 24, 2021, to shareholders of record at the close of business on Feb 10, 2021.

2020 Results

Southern Copper reported earnings per share of $2.03 in 2020, up 6% from the prior year’s $1.92. Earnings beat the Zacks Consensus Estimate of $1.96. Sales increased 10% year over year to $7.98 billion in fiscal 2020 and outpaced the Zacks Consensus Estimate of $7.74 billion.

Per the company, the roll out of vaccines instills hope and the imminent economic recovery will drive an uptick in 2021 copper consumption. Growth in consumption in China and other economies will sustain the demand for copper.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Southern Copper has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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 has been net zero. 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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