Southern Copper Corp. SCCO is expected to release fourth-quarter 2015 results on Feb 3.
In the last quarter, the company delivered a negative earnings surprise of roughly 47.8%. Southern Copper has delivered an average negative surprise of 7.41% over the trailing four quarters. Let’s see how things are shaping up for this announcement.
Factors to Consider
In third-quarter 2015, Southern Copper reported a roughly 70% fall in net income, hurt by lower metal prices. The company witnessed a decrease in the prices of copper by 18%, molybdenum by 40%, silver by 20%, zinc by 5%, and gold by 9%. The company notified that during the year, demand continued to be affected by macroeconomic headwinds and concerns about China’s copper consumption.
Southern Copper also anticipates supply in the upcoming quarters to be impacted owing to a delay in project start-ups, technical problems, labor unrest, excess government taxation and other difficulties. Moreover, in 2016, the company expects a deficit in copper supply as current copper prices do not support sufficient supply growth for the future.
However, taking into account Southern Copper's copper production in the third quarter which increased by 9.4%, the company now anticipates production for 2015 to be 757,300 tons, around 75,000 tons higher than the 2014 level. Further, for 2015, the company expects production of 23,100 tons of molybdenum, higher than its initial guidance of 21,500 tons.
Earnings Whispers
Our proven model does not conclusively show that Southern Copper is likely to beat estimates this quarter. This is because the stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below:
Zacks ESP: Earnings ESP for Southern Copper is currently pegged at -11.11%. This is because the Most Accurate Estimate is 16 cents, while the Zacks Consensus Estimate stands at 18 cents.
Zacks Rank: Southern Copper carries a Zacks Rank #5 (Strong Sell). We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some companies in the basic materials sector you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Fortuna Silver Mines Inc. FSM has an Earnings ESP of +100.00% and a Zacks Rank #2 (Buy).
Pan American Silver Corp. PAAS has an Earnings ESP of +12.50% and a Zacks Rank #2.
Franco-Nevada Corporation FNV has an Earnings ESP of +8.33% and a Zacks Rank #3 (Hold).
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