Shares of Yamana Gold Inc. (AUY, Financial) surged 6.17% on Monday and closed at $3.27 per unit, reversing losses of more than 15% as a result of the downturn in U.S. equity markets.
The recent upside, though sizeable, did not change signs of a drift in the security over the trailing twelve months timeframe. For the 52-weeks through Feb. 12, Yamana Gold lost 5% but outperformed most of its peers with a 7% gain on the Van Eck Vectors Gold Miners ETF (GDX, Financial).
The yesterday gain of 6.17% follows the upgrade of Macquarie.
According to a research note dispatched by the analyst on Friday Feb. 9, shares of Yamana Gold have been upgraded to Outperform from a previous rating of Neutral.
Over the last 13 months of trading, the Canadian miner got three upgrades and three downgrades. Macquarie’s positive rating is preceded by Credit Suisse’s upgrade (neutral to outperform) of Jan. 26, 2018 and by RBC Capital’s upgrade (outperform) of Dec. 12, 2016.
During the same span of time, Yamana Gold was also downgraded by Bank of America (underperform) on Feb. 22, 2017, by Credit Suisse (neutral) on Jan. 13, 2017, and by BMO Capital (market perform) on Dec. 19, 2016.
Currently, the majority of analysts – seven of a total of 15 recommends holding Yamana Gold and six of them recommend buying the stock. Also, for only two analysts Yamana Gold will underperform over the next trading weeks. Therefore, the recommendation rating is 2.6 out of 5. The rating ranges between 1.0 (strong buy) and 5.0 (sell).
On Tuesday, Yamana Gold's average target price was $3.86 per share. This price target – a mean of twelve $2.50 to $5.28 per share ranging estimates – tells that the average analyst foresees an 18% upside in the market value of the stock.
Even though the underlying commodity is nearly $5 per troy ounce lower in February (average of $1,322.30 an ounce) compared to the previous month (average of $1,326.75 an ounce), the bullion is still predicted by analysts to reach $1,380 an ounce this year, supported by a possible reversal in the U.S. Dollar and by a Federal Reserve that is not perceived to be particularly worried about inflation this year.
Yamana Gold is well positioned to benefit from a rising commodity. Mining the metal at a profit below $1,200 per troy ounce gives Yamana Gold more flexibility and increases its chances to profit more than its peers if the bullion meets consensus in 2018.
The recent upside in the market value made Yamana Gold also over the 50-SMA line as it is illustrated in the Yahoo Finance’s chart, and well above the midst of a $2.21 to $3.80 per share 52-week range. Because of this, the stock may not look so cheap anymore, especially when it is compared to the Dec. 2017 second week levels.
Source: Yahoo Finance
A 40% appreciation of Yamana Gold within the following 52 weeks of trading is not a remote possibility if all the factors explained in this article are in favor.
I don’t expect another significant jump in Yamana Gold’s share price already following the announcement scheduled after market close on Friday. This is because from the third quarter of fiscal 2017 - when Yamana Gold reported a net profit of 3 cents per share - to the fourth quarter of fiscal 2017, the average price of the bullion was almost unmoved.
Yamana Gold has a market capitalization of $2.93 billion, a price-book (P/B) ratio of 0.70 times versus an industry median of 2.01 times and an EV-to-Ebitda (ttm) of 7.57 times versus an industry median of 10.18 times.
Yamana Gold has an ebitda margin (ttm) of 32.1% of net sales versus an industry median of 22.8%. This signals that, when gold averaged $1.274 per ounce, Yamana Gold has been more profitable at operations than most of its peers.
(Disclosure: I have no positions in any security mentioned in this article.)
