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Newmont Continues to Impress

October 28, 2011 | About:

Newmont (NYSE:NEM) just released earnings and the gold miner continues to impress shareholders.

Third-quarter net earnings fell to $493 million, or $1.00 per share, from $537 million, or $1.09 per share, a year earlier. Excluding a non-cash impairment of marketable securities and other special items, the profit was $1.29 per share — up from $1.08 a year earlier. Newmont said revenue rose 6% to $2.7 billion, with its average realized price for gold in the quarter increasing 39% to $1,695 per ounce. The current price of gold is $1,744, meaning that next quarter's earnings might even be more robust.

A gold stock trading for a P/E ratio of less than 15 and a dividend yield of almost 2% is similar to value stocks like Microsoft and Medtronic.

On a cash flow basis, the Newmont valuation is even more appealing. Newmont Mining generates $8 of cash flow per share and only sells for 8 times cash flow.

The dividend should also rise as Newmont boosts its dividend 20 cents for every $100 increase in the price of gold.

Many analysts predict that the price of gold should hit $2,500 in the next 18 months. If that were to happen, Newmont would sport a 4.3% dividend which would be on par with a tobacco company. Several high-profile fund managers including Joel Greenblatt have loaded up on Newmont in recent months. For example, Steve Cohen bought 4.52 million shares of the gold miner last quarter at prices between $52-58. Newmont is one of the largest holdings in Cohen's portfolio at 1.25% of his total portfolio. SAC now has 0.95% of the entire company.

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