Is Southern Copper (SCCO) Still a Buy as Copper Prices Stabilize? Assessing Valuation, Earnings Momentum, and Long-Term Supply-Demand Dynamics in a Volatile Market

The global copper market in 2025 is a study in contrasts: soaring prices driven by supply constraints and electrification demand, yet lingering questions about overvaluation and geopolitical risks. For Southern Copper (SCCO), a bellwether in the sector, the interplay of these forces defines its investment appeal. As copper prices stabilize near $5.67 per pound (as of December 30, 2025) and SCCO's stock trades at a 15.2% premium to its intrinsic value, the question of whether the company remains a buy hinges on three pillars: valuation, earnings momentum, and the long-term supply-demand balance.

Valuation: A Tale of Optimism and Overreach

Southern Copper's stock has surged 61.9% year-to-date in 2025, reflecting its role as a critical supplier for electrification and infrastructure projects according to JPMorgan. However, this momentum has outpaced fundamentals. A discounted cash flow (DCF) analysis pegs SCCO's intrinsic value at $125.02 per share, suggesting the stock is overvalued by 15.2% relative to this benchmark. The company's price-to-earnings (PE) ratio of 30.9x also exceeds both the Metals and Mining industry average and its calculated fair ratio of 23.8x according to capital.com.

This disconnect between price and fundamentals raises caution. While SCCO's robust free cash flow-$2.36 billion in Q3 2025 according to AlphaQuery-and low debt-to-equity ratio (0.75 as of June 2025 according to FinanceCharts) underscore financial strength, the market appears to have priced in aggressive growth assumptions. Analysts project SCCO to reach $13.0 billion in revenue and $4.3 billion in earnings by 2028, but these forecasts hinge on sustained copper prices above $6.52 per pound by 2026 according to capital.com, a target that may strain supply-side realities.

Earnings Momentum: Navigating Production Hurdles

SCCO's earnings trajectory is a mixed bag. While the company reported a record $1.1 billion net income in Q3 2025, production challenges have emerged. Total copper output in Q3 2025 fell to 234,892 tonnes from 252,219 tonnes in Q3 2024, attributed to lower ore grades and operational delays at projects like Tia Maria according to Goldman Sachs. These disruptions risk weighing on earnings growth in the latter half of the decade.

Yet SCCO's cost structure offers a buffer. Operating cash costs per pound have dropped to $0.42, and the company projects further reductions to $2.15–$2.20 per pound by 2026. This efficiency, combined with by-product revenues from molybdenum, silver, and zinc according to Monexa, provides a margin cushion. Analysts remain optimistic, forecasting a 3.1% annual revenue growth and a rise in profit margins from 30.4% to 33.3% by 2028.

Supply-Demand Dynamics: A Tightening Market with Structural Risks

The global copper market is in a structural deficit, with J.P. Morgan predicting a 330,000-metric-ton shortfall in 2026. This is driven by mine outages (e.g., Freeport-McMoRan's Grasberg mine in Indonesia according to capital.com), U.S. tariff threats, and slower-than-expected supply growth (1.4% in 2025). SCCO, with its low-cost reserves in Peru and Mexico, is well-positioned to benefit from this tightness.

However, long-term risks loom. Geopolitical tensions, particularly U.S.-China trade dynamics, could disrupt demand, while SCCO's reliance on projects like Tia Maria- expected to ramp up by mid-2027-introduces execution risk. Additionally, while SCCO's reserve life is robust (with projects like Michiquillay offering 25 years of production according to Reuters), the company's 15.2% overvaluation suggests the market has already priced in a significant portion of these future gains.

Conclusion: A Buy for the Long-Term, but with Caution

Southern Copper's strategic advantages-low-cost production, operational efficiency, and a strong balance sheet-make it a compelling long-term play in a copper market defined by structural deficits and electrification-driven demand. However, its current valuation reflects aggressive growth assumptions that may not materialize without sustained price momentum above $6.52 per pound according to capital.com.

For investors, the key is timing. SCCO's stock may offer value if copper prices stabilize near $5.67 per pound and production challenges at Tia Maria are resolved. Yet, given the overvaluation and near-term production headwinds, a cautious approach is warranted. Those with a 3–5 year horizon and a tolerance for volatility may still find SCCO attractive, but it is not a no-brainer buy at current levels.