Gold prices are down about 15% since they traded at $1,900 late last year. With that, I decided to take a closer look at Newmont Mining (NEM, Financial) and other gold stocks to see if they offer opportunities to investors in the event of $3,000 gold. Here are six points I looked at while researching NEM:
Valuation: Newmont’s five-year trailing valuation metrics suggest that the company is fairly valued. Newmont’s current P/B ratio is 1.9 and it has averaged 2.1 over the past five years with a high of 2.8 and a low of 2.6. NEM’s P/S ratio is 3.1 and it has averaged 3.2 over the past five years with a high of 3.9 and a low of 2.7. NEM’s P/E ratio is 14.6 and it has traded in a range between 12.1 and 35.0 over the past five years.
Price Target: The consensus price target for the analysts who follow Newmont is $75. That is upside of 17% from NEM’s current stock price.
Forward Valuation: Newmont Mining is currently trading at $64.04 and analysts expect the company to report earnings of $6.00 a share next year for a forward P/E of 10.7. Newmont’s revenues are expected to grow 19.8% next year. Goldcorp (GG, Financial), another gold miner, is trading at $45.99 and analysts expect EPS of $2.95 next year for a forward P/E of 15.6. Newmonth stacks up well against its competitors. Goldcorp is expected to record revenue growth of 26.9% next year. Analysts forecast that Barrick Gold (ABX, Financial) will earn $5.99 a share next year, which I think is a real likelihood give that Barrick's earnings are driven by gold ore prices. With a current stock price of $48.81, that is a forward multiple of 8.1. ABX’s revenues are projected to grow 19.8% next year. Newmont is trading between Goldcorp and Barrick. However, Barrick is a better comp because of the fact that they are expected to grow at a similar rate. Based on Barrick, Newmont looks a bit expensive.
Earnings Estimates: Newmont has beat EPS estimates three out of the past four quarters. The beats were all small, no more than 5 cents or 5% of the estimate. The miss was one of larger types as the company reported EPS 9 cents lower than estimates or about 9% than the estimate.
Dividend: Newmont pays a quarterly dividend which last quarter was 35 cents a share. That annualizes to $1.40 a year for an annual yield of 2.3%. Newmont started paying a dividend in 1995 at 12 cents per share per quarter. After dipping to 3 cents a quarter in the early part of last decade, the dividend has increased more than 11 times to 35 cents.
Price Action: Unlike Goldcorp and Barrick Gold, Newmont mining has been able to stage a rally this year, rising as much as 30% from a year ago. The stock has since pulled back though after the stock reached 52 weeks highs at $72 a share. After bouncing off $58 and the 200 day moving average, the stock received and is now trading around the $64 level, just short of the 200 day moving average at $64.92. It looks like there is support in the $61-62 area followed by $58-$59. On the upside, it looks like there is resistance in the $65-66 area but there are no clear cut support and resistance levels.
Conclusion: Newmont looks to be in good shape as the company is putting together some strong earnings report and the industry tailwinds are strong as gold may continue to rise. However, the stock does not appear to be undervalued by analysts, relative to comps, and relative to its past trading history so it may be worth staying away from Newmont at these prices and looking for other gold miners or waiting for the price on NEM to drop.
Valuation: Newmont’s five-year trailing valuation metrics suggest that the company is fairly valued. Newmont’s current P/B ratio is 1.9 and it has averaged 2.1 over the past five years with a high of 2.8 and a low of 2.6. NEM’s P/S ratio is 3.1 and it has averaged 3.2 over the past five years with a high of 3.9 and a low of 2.7. NEM’s P/E ratio is 14.6 and it has traded in a range between 12.1 and 35.0 over the past five years.
Price Target: The consensus price target for the analysts who follow Newmont is $75. That is upside of 17% from NEM’s current stock price.
Forward Valuation: Newmont Mining is currently trading at $64.04 and analysts expect the company to report earnings of $6.00 a share next year for a forward P/E of 10.7. Newmont’s revenues are expected to grow 19.8% next year. Goldcorp (GG, Financial), another gold miner, is trading at $45.99 and analysts expect EPS of $2.95 next year for a forward P/E of 15.6. Newmonth stacks up well against its competitors. Goldcorp is expected to record revenue growth of 26.9% next year. Analysts forecast that Barrick Gold (ABX, Financial) will earn $5.99 a share next year, which I think is a real likelihood give that Barrick's earnings are driven by gold ore prices. With a current stock price of $48.81, that is a forward multiple of 8.1. ABX’s revenues are projected to grow 19.8% next year. Newmont is trading between Goldcorp and Barrick. However, Barrick is a better comp because of the fact that they are expected to grow at a similar rate. Based on Barrick, Newmont looks a bit expensive.
Earnings Estimates: Newmont has beat EPS estimates three out of the past four quarters. The beats were all small, no more than 5 cents or 5% of the estimate. The miss was one of larger types as the company reported EPS 9 cents lower than estimates or about 9% than the estimate.
Dividend: Newmont pays a quarterly dividend which last quarter was 35 cents a share. That annualizes to $1.40 a year for an annual yield of 2.3%. Newmont started paying a dividend in 1995 at 12 cents per share per quarter. After dipping to 3 cents a quarter in the early part of last decade, the dividend has increased more than 11 times to 35 cents.
Price Action: Unlike Goldcorp and Barrick Gold, Newmont mining has been able to stage a rally this year, rising as much as 30% from a year ago. The stock has since pulled back though after the stock reached 52 weeks highs at $72 a share. After bouncing off $58 and the 200 day moving average, the stock received and is now trading around the $64 level, just short of the 200 day moving average at $64.92. It looks like there is support in the $61-62 area followed by $58-$59. On the upside, it looks like there is resistance in the $65-66 area but there are no clear cut support and resistance levels.
Conclusion: Newmont looks to be in good shape as the company is putting together some strong earnings report and the industry tailwinds are strong as gold may continue to rise. However, the stock does not appear to be undervalued by analysts, relative to comps, and relative to its past trading history so it may be worth staying away from Newmont at these prices and looking for other gold miners or waiting for the price on NEM to drop.
