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Morgan Stanley sees rising copper prices, upgrades Freeport-Mcmoran

Freeport upgraded at Morgan Stanley
Key Points
  • Morgan Stanley upgrades Freeport-Mcmoran to overweight from equal-weight
  • The firm sees 14% upside to copper price due to a supply driven deficit by year-end
  • Morgan Stanley's target decreased however to $14 from $16

Freeport-McMoRan's stock jumped more than 4 percent on Wednesday after an analyst at Morgan Stanley upgraded it, noting the company will get a boost from higher copper prices.

The firm sees 14 percent upside to copper prices due to a supply driven deficit by year-end, and says Freeport-McMoRan has peer-leading leverage to pricing.

"FCX's earnings sensitivity to copper is still the highest among its peers, and combined with its high trading liquidity, we believe it will emerge as the go-to large-cap stock for exposure to a copper price rally," Morgan Stanley's lead analyst Piyush Sood said in a note Wednesday. He adds that concerns about Freeport's ability to ramp-up production are overblown and Indonesian ownership/environmental overhangs are unlikely to come back.

Shares of Freeport have lost a third of their value over the past 12 months, but Morgan Stanley believes now is the time to buy, and upgraded the stock to overweight from equal-weight.

The firm, however, lowered its 12-month price target to $14 per share from $16 to reflect management's newly disclosed expectations around costs and overall compression in multiples across equities. The current price target represents a 20 percent upside from Tuesday's close.

Short Hills Capital Partners founder and "Halftime Report" trader Steve Weiss is less bullish on Freeport. "If China's not recovering, this stock is not moving higher," he said on Wednesday's "Halftime Report".

Meanwhile, Virtus Investment Partners chief market strategist and "Halftime Report" trader Joe Terranova sees potential in Freeport. "If this is a market that is going to trade higher and you're seeking beta, this is a great opportunity," he said Wednesday. Beta is the measurement of volatility of a stock or investing instrument versus a benchmark or the market at-large.

According to FactSet, the average rating on the stock is overweight with a $14 price target. Shares are up 12 percent year-to-date after a 45 percent plunge in 2018.