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UBS Upgrades Glencore to 'Buy' on Surging Commodity Prices and Earnings Potential
Summary
Analysts at UBS raised their rating on the mining and trading giant, citing an attractive risk-reward profile following a recent share price decline and a stronger outlook for key commodities like coal and copper.
UBS has upgraded its rating on Glencore (LSE:GLEN) to "Buy" from "Neutral," arguing that the commodity giant's risk-reward profile has become more attractive following a recent drop in its share price. The bank also raised its 12-month price target for the stock to 650 pence from a previous 620 pence.
Rationale for the Upgrade
In a note to clients, UBS attributed the upgrade to a confluence of positive factors, including a stronger performance in Glencore’s Marketing division and rising commodity prices. The bank highlighted that Glencore's key commodity basket has gained approximately 20% year-to-date.
Key commodity price movements supporting the outlook include:
- Thermal coal, metallurgical coal, and zinc have each gained around 30%.
- Copper has risen by approximately 12%.
UBS also pointed to better visibility on copper growth, progress on asset disposals, and the potential for higher shareholder returns as key drivers for its more optimistic stance.
Revised Financial Outlook
AdReflecting the improved commodity price environment, UBS has increased its earnings estimates for Glencore. The bank lifted its 2026 and 2027 EBITDA forecasts by 5% and 7%, respectively, primarily due to higher assumptions for Marketing division earnings and coal prices.
Analysts at the bank now see roughly 15% upside to the consensus 2027 EBITDA forecast at current spot prices. Furthermore, UBS projects that Glencore could generate approximately $10 billion of free cash flow in 2027, which would represent a substantial 11% free cash flow yield.
Context and Recent Performance
Glencore's shares have declined more than 10% since late August, a move UBS attributes to broad macroeconomic concerns and governance issues related to a legal dispute with Radiant World. The stock closed at 549 pence on Thursday.
On September 15, Radiant World filed a $2 billion legal claim against the company. Glencore has stated that its exposure to Radiant and related entities is not material and that it considers the claims to be "meritless."
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