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Stock Analyst Update

Phelps Dodge Worth a Look after Blowout Success

But despite strong quarter, copper producer still not an instant buy.

What Happened?
Phelps Dodge  obliterated Wall Street consensus earnings estimates by posting quarterly income from continuing operations of $0.50 per share, an 85% increase from the same period a year ago. First Call consensus estimates had pegged the copper producer's earnings at $0.31.

What It Means for Investors
This is terrific news for investors who already own Phelps Dodge stock. But although we're now more enthusiastic about suggesting that observers on the sidelines take a look at the shares, we still caution against jumping in with both feet. That's because the market had already bet on a similar earnings jump--though perhaps not this large--from Phelps Dodge, and the company has been expensive, with a forward price/earnings ratio near 50 before the announcement, according to First Call.

The main impetus behind the company's upward leap is that Phelps Dodge benefited from average copper prices of $0.87 per pound during the quarter compared with $0.78 a year ago. But the copper market has great volatility, and estimates often miss the mark on this stock by similarly wide margins. This time was no different. However, assuming copper prices remain strong and Phelps Dodge continues to trade in the low $40s, we believe this stock could be a reasonable investment consideration.