Citigroup Inc. (C) took action on three of the biggest producers of gold this week.
It upgraded shares of Goldcorp (GG, Financial) from a previous rating of "neutral" to a new rating of "buy" on a research note dispatched by the U.S. bank on Nov. 30, 2017.
It has also increased its price target on Goldcorp by 6.7% from a price of $15 per share to a new target of $16 per share.
Alexander Hacking, analyst at Citigroup, said that “the multi-year underperformance of the shares has reset investor expectations and "opened up value," reported TheFly, which adds that “the analyst remains neutral to cautious on the gold sector heading into 2018.”
This upgrade from Citigroup has been the fourth one on Goldcorp in eight months and is preceded by a downgrade released by HSBC Holdings plc (HSBC) on Nov. 22.
Goldcorp got two downgrades in the last eight months.
The new price target set by Citigroup’s analyst has dragged the average target price up to $17.21 per share of Goldcorp. This is a mean of 21 estimates of analysts who were surveyed. These estimates range between a low of $12 per share and a high of $25 per share.
The last downgrade of HSBC, on Nov. 22, determined a 5.2% pull-back in the market value of this Canadian gold stock on Nov. 30. It is currently trading at $12.64 per share on the New York Stock Exchange and below both simple moving average lines computed on the last 50 and 200 trading days, as is illustrated in the chart below:
Goldcorp lost 7% year to date and as of today it represents a good buying opportunity to get exposure to changes in gold. In this article I highlighted some catalysts that should work in favor of this gold stock over the coming weeks.
Goldcorp is not the only gold mining stock on which Citigroup acted.
According to a research note dispatched the same date, the U.S. bank has also released a new rating on Barrick Gold Corp. (ABX, Financial), the biggest producer of the yellow metal in the world.
Citigroup Inc. has sharply cut its rating on Barrick Gold, downgrading the shares of the miner from a previous rating of "buy" to a new rating of "sell."
The U.S. firm has also decreased its price target by 35% from a previous target of $20 per share to a new price of $13 per share that Alexander Hacking thinks it will reach within the next 12 trading months. The new price target set by Citigroup represents a 5.7% downside from the current market value of Barrick Gold Corp.
“The analyst cites the company's operating issues and potential for an upcoming reinvestment cycle,” reports TheFly.
With its new price target, Citi has dragged the average target price on Barrick Gold Corp. down to $18.13 per share. Nevertheless, the mean of 21 estimates on the Canadian gold producer's target price still represents a hefty 31.6% upside from the current market valuation of $13.78 per share.
Barrick Gold Corp. is one of the gold stocks that lost the most so far this year, losing 14%. Issues of Acacia Mining – held by Barrick Gold Corp for 63.9% – with the Tanzanian government and at Veladero mine in Argentina have for sure brought the share price down. However, this collapse of Barrick Gold on the stock market remains unjustifiable. As of today, this gold producer giant trading unbelievably cheap. As illustrated in the chart below, Barrick Gold Corp. is far below its 50 and 200 simple moving average lines.
The 52-week range is $13.46 to $20.78 and the Relative Strength Index (RSI) signals that upside in the market value may be just a matter of time for this gold stock that inexplicably reached oversold levels between Oct. 25 and Nov. 21.
In addition, Barrick Gold has a price to book (P/B) ratio of 1.78 and an EV to Ebitda ratio of 3.60.
Citigroup also released a new rating on Agnico Eagle Mines (AEM, Financial).
Hacking has upgraded shares of Agnico Eagle Mines from a previous rating of "sell" to a new rating of "neutral," according to a research note.
The analyst has also increased by 9.5% Citi’s target price on Agnico Eagle mines from $42 per share to a new target of $46 per share.
TheFly reports that “the analyst calls Agnico an excellent company with high-quality assets but views the valuation at current share levels as full.”
Following Citigroup’s upgrade, the average target price – a mean of 16 estimates – is $55.37, which is a 26.7% upside from the current market valuation of $43.71 per share.
So far this year, Agnico Eagle Mines has gained 4%; however, it is still trading below the 50 and 200 simple moving average lines. The 52-week range is $35.05 to $51.86.
Agnico Eagle Mines also represents one of the best options to get exposure to gold through investments in its producers that are publicly traded on the U.S. stock markets. With the existence of macro-factors, which are supportive to the bullion ($1,280 per troy ounce on Nov. 30 and up $129.2 per troy ounce year to date on the London market), it is therefore wise to either increase a position in Agnico Eagle Mines or to start a new one. However, investors should also pay careful attention to the conditions in this gold stock’s trading since the RSI is rising and has already passed the middle of a 25 to 75 range.
Catalysts to this Canadian gold producer cannot but be represented by an assets base which is characterized by an average gold grade (2.31 g/t), which is one of the highest in the gold industry computed on an enviable volume of reserves held (19.9 million ounces of gold at Dec. 30, 2016).
The miner’s management has proven to be one of the best in the gold mining industry, having Agnico Eagle Mines steadily increasing both the average gold grade and reserves over time so that it can mine gold from its reserves without affecting the average metal concentration for at least the next five years. Agnico Eagle is one of the best in the industry on this point, preceded only by Iamgold (IAG, Financial) and New Gold Inc. (NGD), and is better positioned than Barrick Gold (ABX, Financial), Goldcorp (GG, Financial), Newmont Mining (NEM, Financial), Yamana Gold (AUY, Financial), Kinross Gold (KGC, Financial) and Eldorado gold (EGO, Financial).
This portfolio of assets consents the Canadian miner to regularly at least meet expectations on production and costs with a consequent positive impact on the share price for the happiness of its shareholders, who so far have enjoyed value accretion measured by superior share performance.
Since 1998, Agnico Eagle Mines grew 13.07% CAGR on the U.S. stock market versus an 8.12% growth in the gold spot price and versus 1.44% in the Philadelphia Gold and Silver Index (XAU), as illustrated in the chart below from Agnico Eagle Mines’ website:
The Canadian miner targets to close full fiscal 2017 with gold production of 1,680,000 ounces while consensus on revenue and EPS is for $2.23 billion (up 4.30% year over year) and 99 cents (up 73.7% year over year).
Agnico Eagle Mines has a price-book (P/B) ratio of 2.13 and an EV to Ebitda ratio of 10.25.
Disclosure: I have no positions in any stock mentioned in this article.
