Goldcorp Inc. (GG) will release operating and financial results for the third quarter after the market closes on Oct. 25.
For the quarter in question, the average analyst forecasts Goldcorp will post an EPS of 10 cents. This is a mean of 13 estimates of analysts who were surveyed. These estimates range between a low of 4 cents per share and a high of 15 cents per share. The forecast represents a 9.1% decrease from the same quarter of 2016.
Source: Yahoo Finance
Revenue for the third quarter is expected to come in at $854.03 million. This figure is an average of five estimates of analysts who were surveyed and represents a 6.70% decrease from the third quarter of fiscal 2016. The estimates ranged between $787.01 million and $950.28 million.
Source: Yahoo Finance
According to my method of estimating Goldcorp’s earnings for the third quarter of fiscal 2017, which is calculated using the information in the chart below, I forecast the company will close the quarter with a net profit of about 9 cents per share. If my estimate materializes, the Canadian gold producer will miss analysts’ expectations by 1 cent, generating a negative surprise of 10%
My estimate is based on this concept: how much the company earns per ounce of the yellow metal sold. According to my calculations, Goldcorp’s gold margin per ounce (gold price per ounce minus the all-in sustaining cost [AISC] per ounce) yields earnings of approximately 25%. That means 25% of the gold margin per ounce of the metal sold drops to the bottom line of Goldcorp’s income statement as adjusted net profit per ounce of the yellow metal sold.
The yield of 25% is calculated based on the average realized gold price and Goldcorp’s figures on AISC per ounce, gold production, number of shares outstanding and earnings per share as reported by the company at the end of the third quarter of fiscal 2016. I chose data from the third quarter of fiscal 2016 to make projections for the third quarter of fiscal 2017 and not those data of the most recent previous quarter of this fiscal because, being a gold stock, Goldcorp's net profit tends to rise and fall with the business cycle of gold. And the gold industry, in which Goldcorp operates as producer, and therefore as a supplier of the metal, is a cyclical industry. The gold miner’s quarterly figures, especially those figures on quarterly earnings, tend to show a similar trend on a year-over-year basis.
Then, I divided the earnings per ounce of gold sold (i.e., third-quarter 2016 actual EPS of 11 cents multiplied by 1,190 ordinary shares) by the gold margin of $522.82 per ounce. This operation yields to 25%.
Approximately 1,190 ordinary shares of Goldcorp equaled one ounce of gold in the third quarter of fiscal 2016. This figure is based on the production the miner reported at the end of the third quarter of fiscal 2016. Therefore, investing in 1,190 shares of Goldcorp during the third quarter of 2016 was like buying one ounce of the yellow metal.
Applying the same percentage (25.04%) for the third quarter of fiscal 2017 to the average gold price and Goldcorp's guidance for the quarter in question, I obtain an earnings figure of $119.65 per ounce of gold sold. Dividing this figure by 1,370 ordinary shares (gold production forecasted for the third quarter of fiscal 2017 divided by the volume of shares outstanding), I obtain an EPS estimate of 9 cents. This is 1 cent lower than the EPS of 10 cents (average) forecasted by analysts for the third quarter.
My estimate on third-quarter earnings has also been based on a volume of gold production that Goldcorp expects to be approximately 2.5 million ounces this year at an AISC of $825 per ounce of metal sold.
The third-quarter earnings announcement will not produce a statistically significant impact on the market value of this gold stock. It is currently trading around $13.09 per share with a market capitalization of $11.49 billion, a price-book (P/B) ratio of 0.78, a price-sales (P/S) ratio of 2.95, a price-earnings (P/E) ratio of 22.70 and an EV/EBITDA ratio of 8.71.
The analysts' average target price per share of $16.71 represents a nearly 27.7% upside from the current market value per share.
The current recommendation rating for Goldcorp is 2.5 out of a total of 5, with the last recommendation rating (Hold to Buy) received by Canaccord Genuity on Sept. 29.
As of the most recent quarter, Goldcorp had $123 million in cash and securities and total debt of $2.81 billion, for a total debt-equity ratio of 20% versus an industry median of 34%. The interest coverage ratio is 4.72 versus an industry average of -0.90.
GuruFocus gives Goldcorp a financial strength rating of 5 out of 10 and a profitability and growth rating of 6 out of 10.
Disclosure: I have no positions in Goldcorp.
