Southern Copper (SCCO): Can Copper's Green Future Outweigh the Hold Rating?

The mining sector has long been a bellwether for global economic health, and few companies embody this dynamic more than Southern Copper (SCCO), the largest U.S.-listed copper producer. Despite its Zacks #3 (Hold) rating—a neutral signal—SCCO's position at the intersection of rising green energy demand and operational resilience offers intriguing investment potential. Let's dissect whether the Hold rating is a red flag or a missed opportunity.

Valuation: A Mixed Scorecard

SCCO's valuation metrics paint a contradictory picture. Its forward P/E of 21.33 sits below the mining industry average of 22.78, suggesting some affordability. However, its PEG ratio—a measure of growth-adjusted valuation—stands at 2.25, far exceeding the industry's 0.85. This signals investors are pricing in high growth expectations that may not yet be reflected in earnings.

The disconnect between P/E and PEG hints at a valuation tug-of-war. On one hand, SCCO's dividend yield of 2.10% and stable cash flows (projected to hit $4.98 billion by 2027) provide a safety net. On the other, the PEG premium may reflect skepticism about whether its growth catalysts—like the Tia Maria project—will deliver as expected.

Earnings: A Near-Term Dip, but Long-Term Upside

SCCO's Q2 2024 results revealed a 13.93% decline in quarterly EPS, driven by cost pressures and lower ore grades at legacy mines. Analysts have yet to revise consensus estimates upward in the past month, keeping the Zacks Rank anchored at #3. However, the company's 2025-2028 roadmap paints a brighter picture:

• Tia Maria Project: Expected to begin production in 2027, this $1.8 billion venture aims to boost annual copper output by 20% in Peru, adding 120,000 tonnes of production capacity.
• Michiquillay Project: 39% complete as of Q2 2025, this underground mine will further diversify SCCO's output.

By 2028, SCCO targets over 1 million tonnes of annual copper production, a 30% jump from current levels. These projects could stabilize earnings growth, which is currently projected at 5.2% annually—modest but improving.

Zacks Rank: A Neutral Stance, but Why?

The #3 rating reflects Zacks' focus on near-term volatility. While SCCO's revenue grew 3.86% YoY in 2023, quarterly revenue dips (e.g., a 6.86% drop in Q4 2024) have spooked short-term traders. The system's algorithm, which emphasizes estimate revisions, likely downplays long-term catalysts like Tia Maria.

Investors must ask: Is the Hold rating a fair assessment of SCCO's trajectory, or does it underweight the $10.16 trillion green energy copper demand expected through 2030? The answer hinges on two factors: copper prices and operational execution.

Copper's Green Catalyst: A Tailwind or Headwind?

Copper prices remain SCCO's lifeblood. In Q2 2025, prices averaged $9,300/ton, up 5% from a year ago, fueled by EV adoption and renewable infrastructure. The IEA estimates a 30% gap between supply and demand by 2035, suggesting prices could trend higher.

SCCO's operational stability—156,818 hectares of Peruvian concessions and 502,688 hectares in Mexico—ensures it can capitalize on this demand. Yet risks persist:

• Cost Overruns: Tia Maria's budget has already surged by 28.6% due to inflation and design changes.
• Regulatory Hurdles: Peru's 2026 elections could introduce policy shifts, though SCCO's local partnerships have eased community opposition.

The Bottom Line: Hold for Now, but Watch Copper Closely

The Zacks #3 rating isn't a sell signal, but it's a reminder to be selective. SCCO's 2.10% dividend and $4.98 billion cash flow by 2027 offer downside protection, while its projects position it to benefit from copper's green transition.

Historically, when SCCO has beaten earnings estimates, the stock has delivered an average return of 4.1% over the subsequent 20 trading days, with a 68% hit rate. However, investors should note the maximum drawdown of 12% during this period, underscoring the importance of risk management.

Investment Thesis:
- Hold: For now, wait until earnings stabilize and Tia Maria's progress becomes clearer.
- Buy: If copper prices breach $10,000/ton (a key resistance level) and SCCO's Q2 2025 earnings beat estimates, consider a position—backed by historical outperformance following positive surprises.

Final Take

Southern Copper isn't a slam-dunk buy, but its moat in the copper space and long-term tailwinds make it a stock to monitor. Investors seeking exposure to green energy's metal demand should keep SCCO on watch lists—especially if copper prices confirm their upward trajectory. The Zacks Hold rating may be premature, but patience could reward those willing to wait for SCCO's projects to bear fruit.