On Friday, Southern Copper Corporation (NYSE:SCCO) received an upgrade from Jefferies from a Hold to a Buy rating on the stock, with the firm also increasing the price target to $130.00, up from the previous $91.00. This shift in stance is attributed to the company's solid performance and promising outlook, which is expected to continue propelling its share price.
According to the analyst from Jefferies, the revision of the price target and the upgrade come on the back of an updated price deck and production estimates for Southern Copper.
The firm's 2024-26 EBITDA estimates for Grupo Mexico, the parent company of Southern Copper, and SCCO have been raised by approximately 9% and 7%, respectively. This increase is partly due to the de-risking of Southern Copper's development projects, which has significantly contributed to the raised target price.
The new sum-of-the-parts (SoTP) valuation for Southern Copper now stands at $130, marking a substantial increase from the previous $91 target. According to the analyst, around half of this uplift in valuation is a result of the reduced risk associated with the company's development projects. In addition to Southern Copper, the SoTP target price for Grupo Mexico has also been revised to MXN130 from MXN114.
The analyst highlighted that Grupo Mexico's valuation gap has widened, with the discount to the market value of its listed subsidiaries now at approximately 47%, compared to a historical average of around 30%.
Despite this, the firm recognizes the attractive value at Grupo Mexico. However, the focus remains on Southern Copper, which is expected to benefit from the strength in copper prices, improved production volumes, and the potential launch of the Tia Maria project, all contributing factors to the upgraded rating.
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