Morgan Stanley has downgraded shares of Barrick Gold Corp. to Underweight from a previous rating of Equal-Weight, according to a research note dispatched today..
The U.S. bank has revised its price target down to $12 from a prior $14 per share.Recommendation rating of 2.9 out of 5 and average target price of $15.75 per share will be affected. The current average target price is a mean of 21 estimates, which range between a low of $11 per share to a high of $20.20 per share.
Following the downgrade of Morgan Stanley the average target price should lower to $15.58 per share.
As of Monday, a total of 24 analysts were surveyed. A consensus of eight analysts supported a Buy approach while a total of 15 analysts recommended a Hold on the stock. One analyst believes that Barrick Gold will underperform the market in the next 52 weeks of trading.
I agree with analysts who have recommended a Hold approach on the Canadian gold producer because of an absence of short-term catalysts.
I don’t believe that a second quarter earnings announcement for fiscal 2018 will generate an upside in the market value of Barrick Gold, as it happened soon after the release of the financial results for the first quarter. Following the earnings announcement for the first trimester of 2018, Barrick Gold closed that week with an increase of 85 cents, up 6.6%, to $13.77 per share, as you can see in the chart powered by GuruFocus:
My doubts of the miner’s capability to beat consensus in the second quarter stems from the fact that Barrick Gold Corp. still needs a period of adjustment before getting used to the sale of 50% of Veladero mine in Argentina. The miner is also busy revising operations at Acacia Mining in Tanzania.
The divestment by Barrick Gold of its 50% interest stake in Veladero mine to Shandong Gold caused a 50% decrease in the quarterly production at the Argentinian mine.
While Barrick Gold's 63.9% interest stake in Acacia is exposed to the company’s balance sheet stabilization. The effort is occurring after that the Tanzanian government imposed an export ban on copper concentrates due to underreported revenues. Acacia Mining is also taking into consideration the divestment of non-core assets to reach the goal of balance sheet stabilization.
Recently, the company has also experienced some operating issues with lower ore grades encountered during mining activities at Cortez and Goldstrike mines in Nevada.
If at one million ounces, the production of gold is expected to be approximately on par with that of the first quarter. This means that the same operating issues will weigh on the second quarter, as well. The company also expects a higher sustaining capex, which likely will have an impact on the free cash flow.
For full fiscal 2018, production is anticipated to reach 4.5 to 5 million ounces of gold and 385 to 450 million pounds of copper.
The commodity will also not be so supportive as it was in the first quarter of 2018 when gold and copper averaged $1,329.28 per troy ounce and $3.103 per pound. The yellow metal is headed to a second-quarter average price of $1,304 per troy ounce and the red metal will likely mark a quarterly average price of $3 per pound.
In addition, I do not have confidence that the stock will beat consensus on earnings based on analysts’ forecasts in the second quarter. In the first quarter, the miner exceeded predictions by only one cent. Analysts are now forecasting higher earnings of 16 cents per ordinary share. It appears unlikely that Barrick Gold will be able to impress the market with a second-quarter profit.
Investors may want to wait for the market to create a more convenient entry point in one of the largest producers of gold in the world. In the second half of 2018, I am forecasting that higher grades and throughput at Barrick Nevada and Pueblo Viejo will drive a stronger gold output.
As you can see in the chart powered by GuruFocus, the stock is not trading so cheaply as compared to a few weeks ago. The current share price is approximately at the 100 and 50-SMA lines even though it is below the 200-SMA line. The 52-week range of $11.07 to $18.35 also demonstrates that the current share price of $13.07 per share is not the cheapest over the trailing 12 months.
Barrick Gold has a market capitalization of $15 billion, a price-book ratio of 1.61 times versus an industry median of 2.06 times and an enterprise value to earnings before interest, taxes, depreciation and amortization (Ebitda) ratio of 5.66 times versus an industry median of 9.9 times.
(Disclosure: I have no positions in any security mentioned in this article.)
