On Monday, UBS downgraded shares of Teck Resources (NYSE:TECK) Ltd (TECK-B:CN) (NYSE: TECK), shifting the stock's rating from Buy to Neutral while maintaining its price target at C$76.
The downgrade reflects the analyst's view that while Teck's stock has risen approximately 40% over the past 12 months, similar to other high-quality copper stocks, the company has faced operational challenges and has not made visible progress on near-term growth projects.
The analyst believes that it may take Teck Resources six to nine months to rebuild investor confidence. This could be achieved by reaching a steady state at the QB operation and approving new growth projects. The recent Strategy Day event has already occurred and did not provide the catalyst for further stock re-rating that some investors might have expected.
Concerns were raised about the copper market's outlook following the U.S. elections. The analyst suggests that potential tariffs could affect global growth, delay restocking in developed markets, and lead to the unwinding of extended net long positions in the market.
Despite the downgrade, UBS notes that the ongoing share buy-back program by Teck Resources could help limit the stock's downside. The company's efforts to repurchase its shares may provide some support to the stock price in the face of the challenges and uncertainties highlighted by the analyst.
In other recent news, mining company Teck Resources Limited announced a strategic shift towards energy transition metals during its Third Quarter 2024 Earnings Call. The company reported a record shareholder return of $720 million for Q3, and a reduction in debt by US$1.5 billion.
It also highlighted record copper production and the completion of the QB2 project, with plans to increase copper production by year-end. Adjusted EBITDA more than doubled year-over-year, driven by robust copper and zinc prices.
Teck Resources has become a pure play energy transition metals firm after selling its steelmaking coal interests. The company's strong financial performance was also marked by a net cash position of US$1.8 billion as of September 2024, and an expectation of continued share buybacks at approximately $400 million per quarter into Q4 and 2025.
Despite an $828 million impairment charge on Trail operations, adjusted EBITDA and EPS significantly increased.
In terms of future expectations, Teck Resources narrowed its 2024 copper production guidance to 420,000–455,000 tonnes and is progressing near-term copper projects for potential sanctioning in 2025. The company remains committed to balancing growth strategy and shareholder returns with a $3.25 billion share buyback program authorized.
However, lower expected high-grade ore production has led to reduced copper production guidance, and lower production volumes are expected to lead to increased unit costs for 2025.
InvestingPro Insights
While UBS has downgraded Teck Resources Ltd (TECK) to Neutral, InvestingPro data and tips offer additional context to the company's financial position. Despite operational challenges noted by UBS, Teck's financials show some strengths. The company's revenue growth is impressive, with a 114.29% increase over the last twelve months as of Q3 2024. Additionally, Teck's EBITDA has grown by 286.3% in the same period, indicating strong operational performance.
InvestingPro Tips highlight that management has been aggressively buying back shares, aligning with UBS's observation about the ongoing share buyback program. This strategy could indeed help support the stock price. Moreover, Teck has maintained dividend payments for 15 consecutive years, demonstrating a commitment to shareholder returns despite market fluctuations.
The company's P/E ratio (adjusted) of 12.82 suggests that the stock may be reasonably valued compared to its earnings, which could be attractive to value investors. However, it's worth noting that 8 analysts have revised their earnings downwards for the upcoming period, which may reflect the operational challenges mentioned in the UBS report.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips that could provide further insights into Teck Resources' financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.