SCCO Q4 Earnings Beat Masks Persistent Overvaluation and Execution Risks

What happened

Southern Copper reported strong Q4 2025 earnings beats, achieving record annual sales and profits driven by higher metal prices and volumes. However, full-year copper production slipped slightly, highlighting operational challenges despite favorable market conditions. The DeepValue report indicates SCCO trades at approximately 144% above its DCF intrinsic value of $59 per share, reflecting rich valuation multiples. This premium embeds optimistic assumptions about sustained high copper prices and flawless execution of a $15+ billion capex pipeline in politically volatile regions like Peru and Mexico. Consequently, while earnings are robust, the stock's overvaluation and underlying risks remain significant concerns for investors.

Implication

The Q4 earnings beat underscores SCCO's leverage to high copper prices but does not address its steep overvaluation relative to intrinsic value. Slipping copper output signals potential inefficiencies or external disruptions that could hinder future growth. With the stock trading at rich multiples, any disappointment in copper prices or delays in the capex pipeline could trigger a sharp correction. Governance issues from Grupo México's control and reduced dividend payouts despite record earnings further erode shareholder alignment. Therefore, investors are advised to avoid new exposure and wait for a valuation reset or tangible progress in mitigating country and project risks.

Thesis delta

The news of strong Q4 earnings does not alter the 'POTENTIAL SELL' thesis from the DeepValue report, as it confirms near-term profitability but fails to resolve core overvaluation and execution risks. The earnings beat may temporarily support the stock price, but the fundamental mismatch between price and intrinsic value persists, reinforcing the need for caution. No shift in stance is warranted until valuation aligns with fundamentals or key risk factors show meaningful improvement.