Analysts at Barclays called Glencore PLC (LSE:GLEN) their ‘top pick’ in the mining sector with the expectation that coal prices will remain high.
Barclays repeated an ‘overweight’ rating and upgrading the price target.
Set at 425p the new target sees over 19% upside to the current price of 425p.
“Glencore is our Top Pick, with sector-leading EPS momentum as coal markets look well supported over coming months, with extraordinarily cheap valuation metrics plus catalysts from asset disposals, a potential DOJ settlement next year and strong FCF driving significant shareholder returns over the next 12 months (34% spot FCF yield in 2022E),” Barclays analyst Amos Fletcher said in a mining sector note.
“The company’s Paris-compliant coal run-off also improves investability, in our view.”
Earlier this week, analysts at Citi described Glencore as the best performing large-cap in the year to date with unfashionable and environmentally dubious thermal coal fuelling that performance.
It points out that Glencore is generating 30% free cash flow (FCF) against a sector average (but still impressive) 18%.
Citi believes that Glencore can keep the momentum going by putting that cash flow to work over the next five years in the form of stock repurchases. The cash at its disposal is eye-watering – US$88bn at current spot prices, or US$67bn based on the bank’s commodity price forecasts.