Analysts Forecast Huge Increase in Goldcorp's EPS

Analysts estimate EPS of 12 cents; a year ago EPS was negative

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Goldcorp Inc. (GG, Financial) will release its second-quarter results after the market closes on Oct. 26.

For the third quarter, analysts estimate an average EPS of 12 cents, up 16 cents from the same quarter of one year ago. Analysts' estimates on EPS range between 20 cents (high) and 5 cents (low).

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Source: Yahoo Finance

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Concerning revenue for the third quarter analysts estimate a 3.70% decline on a year-over-year basis. The average estimate is $1.03 billion and ranges between a high of $1.09 billion and a low of $992 million.

02May2017143345.jpg

Source: Yahoo Finance

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Analysts based positive estimate of EPS on gold's increase of $209.936 per troy ounce on the London bullion market, or 18.7%, from $1,124.996 in third-quarter 2015 to $1,334.932 in the third quarter.

Evidently analysts believe the significant jump in the price of gold will be sufficient to offset the negative effects on the economics of the miner, so operating issues might still produce if in the meantime Goldcorp has not been able to solve them. In my previous article on Goldcorp I summarized these operating issues in a lower average grade of gold proven reserves (Au g/t), which involves more effort (more operating costs) to extract the metal.

This operating problem was still evident from last quarter's results: as a matter of fact, Goldcorp closed the second quarter showing a 32.4% decrease in gold production from 908,000 ounces in second-quarter 2015 to 613,400 ounces while AISC increased 25% from $853 in the second quarter of 2015 to $1,067 per ounce in the second quarter, despite an increase of earnings to $80 million in the second quarter from a loss of $87 million in second-quarter 2015, making the operating issue de facto.

Lower average grade of gold proven reserves (Au g/t) than peers impacted also on the Q2 2016 adjusted operating cash flow that, without support from an increase in the average realized gold price, would have decreased even more: during the second quarter adjusted operating cash flows decreased with 41.30% from $523 million in the second quarter of 2015 to $307 million in the second quarter.

If Goldcorp has not been able to increase production, achieve higher grades from a number of mines and lower AISC during the third quarter as generally expected, this might lead to a negative suprise in EPS with a statistically significant impact on the market value of the stock as happened in the second quarter.

Disclosure: I have no position in Goldcorp.

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