(By Balachander) Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX) shares were upgraded to "buy" from "hold" by Deutsche Bank (DB).
"Freeport's $20 billion move into energy was a shock (FCX -20 percent in 2 days) due to unexpectedness, high leverage, unclear industrial rationale, premiums paid and potential conflicts of interest," the bank wrote.
But, DB believes investors will eventually move past "anger" and to "acceptance" as the bank assumes the deal will go through and the share price decline over-penalizes the stock.
"Our downgrade to Hold on December 5 was driven by the aforementioned factors, however, based on a better understanding of deal mechanics and implied resource upside, we now believe upside is possible," the bank said.
DB has a price target of $40 on the stock.
Given increased complexity, FCX moves from being a swan to an ugly duckling for the next few quarters but could ultimately emerge a stronger, more dynamic company, the bank said.
Early December, Freeport-McMoRan agreed to acquire Plains Exploration & Production Co. (PXP) and McMoRan Exploration Co. (MMR) in transactions totaling roughly $20 billion.
FCX shares fell 0.41 percent to trade at $33.81 on Thursday. Over the past year, the stock has been trading between $30.54 and $48.96.