According to a research note issued by Bank of America on Oct. 31, shares of Eldorado Gold Corp. (EGO, Financial) have been downgraded.
Bank of America Merrill Lynch downgraded Eldorado to neutral from a previous rating of buy, as shown in the chart below.
Source: Yahoo Finance
This marked the fifth downgrade Eldorado has received over the past four months.
It was preceded by an upgrade (underperform to neutral) on Sept. 25 from Credit Suisse and it four other downgrades.
On Sept. 12, Macquarie Group Ltd. downgraded Eldorado to neutral from outperform; on July 31, Credit Suisse downgraded the miner to underperform from outperform; on June 29, RBC Capital Markets downgraded the company to sector perform; and on June 15, Canaccord Genuity Group Inc. downgraded the Canadian mid-tier gold producer to speculative buy.
The rating decision was influenced by the miner's poor third-quarter performance, which was impacted by operating issues at its Kisladag mine in Turkey.
As a result of these issues, Eldorado was forced to review the rates of gold that can be recovered from the ore and, therefore, has lowered its production expectations for full-year 2017. The miner lowered its production guidance from the range of 365,000 ounces to 400,000 ounces to between 290,000 ounces and 340,000 ounces, a 17.6% decrease.
Kisladag has not only impinged on the company’s production expectations, but has also impacted its expectations on costs. The all-in sustaining cost (AISC) per ounce of gold sold – as a consequence of the fact fixed costs will be spread over a lower volume – increased 4.7% from the initial range of $845 to $875 per ounce to an AISC of $900 per ounce of gold sold in 2017.
The bank’s decision also negatively weighed on the average target price of the stock.
Source: Yahoo Finance
The average target price fell from $3.17 per share to $2.23 per share following Bank of America's decision.
Despite the decline in the anticipated market value, the current target price represents a hefty 78.4% upside from Eldorado's current valuation.
The company's revised production and cost outlook for fiscal 2017, however, has sent the stock to a level where investors could initiate or add to a position. The Canadian gold stock has lost more than 60% year to date on the New York Stock Exchange. It is also oversold according to the relative strength and simple moving averages for the past 50 and 200 trading days.
Eldorado Gold is currently trading close to its 52-week low of $1.22 per share (the 52-week high is $3.91 per share) with a price-book (P/B) ratio of 0.29.
Disclosure: I have no positions in Eldorado Gold.
