Antofagasta Cut to Sell at Morgan Stanley on Valuation Concerns

Antofagasta (LON: ANTO) shares have performed well over the past week, climbing more than 8%, but one investment bank believes the stock is set to pull back.

US investment bank Morgan Stanley downgraded its rating for Antofagasta to Underweight from Equal Weight in a note this week, cutting its price target for the stock to 1,600p, down from 1,920p.

The new price target is below the current 1,858p level that Antofagasta trades at after a more than 10% rise so far in 2024.

Morgan Stanley said in its note to clients that with copper pulling back in recent months, Antofagasta's share price has declined 26% from its second-quarter peak alongside the broader equity space.

However, the bank's analysts state that the stock is still up year-to-date and is now pricing $4.78/lb copper into perpetuity, representing a 14% premium to spot and an 11% premium to Morgan Stanley's commodities team's long-term incentive price forecast.

While the bank acknowledged the risks and the “supportive M&A narrative in the copper space,” they believe the state that the “stark valuation divergence between ANTO and peers prompts us to downgrade the stock to Underweight.”

Earlier this month, Goldman Sachs initiated Antofagasta with a Neutral rating and 2,000p a share price target. The bank said ANTO presents concentrated copper exposure focused around two high-margin mines in Chile, but they believe it is entering a period of rising capex. Goldman Sachs also expects Antofagasta to encounter near-term operational challenges at Centinela.

According to data compiled by TradingView, three analysts currently have a Buy rating on Antofagasta, while nine have a Hold rating and seven a Sell rating on the stock.