Is Southern Copper Overvalued or Undervalued in a Copper-Driven Future?

The debate over Southern Copper Corporation's (SCCO) valuation has intensified as the company navigates a historic surge in copper prices and a structural shift toward electrification. With a trailing price-to-earnings (P/E) ratio of 30.9x-well above the industry average of 25.4x-and a forward P/E of 26.64, skeptics argue the stock is overpriced. However, a deeper analysis of discounted cash flow (DCF) models, macro-driven demand trends, and Southern Copper's production expansion projects reveals a nuanced picture. This article examines whether the company's rally is justified or if it represents a buying opportunity amid long-term structural growth in copper demand.

P/E Ratio: A Premium for Growth or a Bubble?

Southern Copper's trailing P/E of 30.9x as of December 2025 reflects robust earnings growth. The company reported a trailing twelve-month (TTM) earnings per share (EPS) of $4.79, up 38.2% compared to 2023 and 20.5% quarter-over-quarter in the most recent quarter. This outperformance is driven by elevated copper prices, which hit $5.49 per pound in November 2025-a 35.9% increase year-over-year. While the P/E ratio appears elevated, it aligns with the company's role as a key beneficiary of the global energy transition. For context, the peer average P/E is 24.8x, and the industry average is 25.4x, suggesting investors are paying a premium for Southern Copper's exposure to secular demand drivers.

However, the forward P/E of 26.64 implies that the market expects earnings to grow at a moderate pace. If copper prices stabilize or decline, as Goldman Sachs predicts for early 2026, the stock could face downward pressure. This highlights the tension between near-term volatility and long-term structural demand.

DCF Model: Intrinsic Value vs. Market Price

Discounted cash flow analysis offers a more granular view. Southern Copper's free cash flow (FCF) of $3.48 billion in the last twelve months is projected to grow to $5.1 billion by 2029, driven by expanding production capacity and higher copper prices. Using a weighted average cost of capital (WACC) of 9.98%, the DCF model estimates an intrinsic value of approximately $125.91 per share as of the latest financial data. At this level, the stock is neither significantly undervalued nor overvalued, assuming the growth projections hold.

Critically, the DCF model's sensitivity to assumptions about the discount rate and FCF growth rates introduces uncertainty. A higher WACC (e.g., 10.5%) or slower FCF growth would lower the intrinsic value, while a lower WACC or faster growth would justify a higher price. Given Southern Copper's strong balance sheet and expansion projects, such as the Tía María and Michiquillay mines in Peru according to Fitch Ratings, the company is well-positioned to meet these growth assumptions.

Macro-Driven Bullish Narratives: Copper's Role in the Energy Transition

The most compelling argument for Southern Copper's long-term value lies in the structural demand for copper. Global copper demand is projected to grow by 24% by 2035, reaching 42.7 million tonnes per annum (Mtpa), driven by electrification and digitalization. Key sectors include:
- Electric Vehicles (EVs): Copper demand per EV is 2.5 times higher than in internal combustion vehicles, with the EV segment growing at an 18% CAGR.
- Data Centers: Require 4.2 tons of copper per megawatt of capacity and are expected to grow at a 25% CAGR.
- Renewable Energy: Wind turbines and solar systems require 3.6 and 2.1 tons of copper per megawatt, respectively, with CAGRs of 15% and 22% as reported by industry analysts.

Southern Copper's reserves of 684.17 million tons-enough to sustain production for 60 years at current rates-position it to capitalize on this demand. The company's $10.3 billion investment in Peru, including the Tía María and Michiquillay projects, is expected to add 350,000 metric tons of annual production by 2032. These projects align with Wood Mackenzie's forecast that the energy transition alone will require an additional 2 Mtpa of copper supply over the next decade.

Contrasting Valuation Models and Macro Trends

The divergence between the P/E ratio and DCF model underscores the importance of time horizons. The P/E ratio reflects near-term expectations, which are sensitive to copper price volatility. In contrast, the DCF model and macro-driven demand trends emphasize long-term structural growth. For example, J.P. Morgan forecasts copper prices to reach $12,500 per metric ton in Q2 2026, driven by a global refined copper deficit of 330 kmt. Even if prices moderate in early 2026, as Goldman Sachs predicts, the long-term deficit and demand from electrification will likely push prices higher beyond 2026.

Southern Copper's valuation must also be contextualized within its industry. The company's P/FCF ratio of 34.60 appears high, but this metric is less relevant for a resource company with long-lived assets and expanding reserves. The true test of valuation lies in whether the company can sustain its earnings growth and free cash flow as demand accelerates.

Conclusion: A Fairly Valued Long-Term Play

Southern Copper's current valuation is neither a clear overvaluation nor an undervaluation. The P/E ratio reflects strong earnings growth but is sensitive to near-term price fluctuations. The DCF model suggests intrinsic value is in line with the current price, assuming growth projections hold. Meanwhile, macro-driven demand trends-particularly in electrification and infrastructure-provide a robust tailwind for the company's long-term prospects.

For investors with a multi-year horizon, Southern Copper represents a compelling opportunity. The company's production expansion projects, coupled with its dominant reserves and strategic positioning in the energy transition, justify confidence in its ability to generate value. However, those focused on short-term volatility should remain cautious, as copper prices and global economic conditions could introduce near-term headwinds.