Jefferies has downgrded the stock of Barrick Gold Corp. (ABX, Financial) to 'hold' from 'buy.' It is the fifth of a total of six downgrades for the mining company in less than six months.
Other downgrades were provided by firms, including Morgan Stanley, Canaccord Genuity and Argus. RBC Capital upgraded the stock on one occasion.
The recommendation rating on the gold mining company was 3.1 out of a total of 5.
A total of eight analysts recommended buying shares. A total of 15 analysts recommended holding the stock. One analysts believed the stock would underperform during the next 12 months of trading.
Jefferies has also revised its price target. The firm predicted that the stock would reach $11 share price within the next 52 weeks of trading.
Following Jefferies’ prediction, the average target price is now $14.37 per share and represents a stock appreciation in excess of 30%. The average target price is a mean of a total of 21 estimates ranging from $11 to $18.
Sell-side analysts have shocked investors of Barrick Gold with the downgrades. The recent rating from Jefferies indicated that prospects for Barrick Gold Corp. are still seen weaker than a few months ago.
The reason behind the series of downgrades has to do more with a falling commodity than operational problems. Barrick Gold, together with Newmont Mining Corp. (NGC) represents the two largest gold producers in the world. So the performance can only be explained by poor momentum for gold.
Barrick Gold remains one of the best options in the industry for exposure to the metal. The cmpany has a solid balance sheet with a sizeable war chest of nearly $2.5 billion in cash on hand and securities.
The company is still above the industry median regarding debt.Ă‚ It has one of the lowest costs in the industry, which offers protection and enhances the miner's financial flexibility.
Over the last few months of operations Barrick Gold has cut total debt by 9.4%. The total debt was $5.8 billion. The company is expected to execute a debt reduction strategy as a result of short-term interest rates. The inverted yield curve also will make the withdrawal of long-term corporate loans less costly.
The company has a portfolio of assets can hardly be replicated by any other entity in the mining industry. The quality of its assets gives it a lot of flexibility so that operating costs can be stay under control even in a high volatility commodity environment.Ă‚
Barrick Gold is also investing in the technology and in partnerships with other operators that specialize in untapping mineral resources from the underground. Barrick Gold is currently working with Shandong Gold Group Co. Ltd. The partnership will allow the gold miner to lower the All-In Sustaining Cost, or AISC, that stands below $800 per ounce of metal sold. The AISC is one of the metrics that investors consider the most when they study the fundamentals of a gold mining company.
Barrick Gold fell 34% to $10.92 share price for the 52-weeks through Aug. 6. The stock is now below the 200, 100 and 50-SMA lines. The distance is abundant.
Other indicators of a convenient entry point stem from a 52-week range of $10.83 to $18.35 per share, a price-book ratio of 1.35 versus an industry median of 2.06 times and an EV-to-Ebitda ratio of 8.58 times towards an industry median of 9.9 times.
Current valuations also are offering an opportunity. With a Relative Strength Indicator, or RSI, of 26, the stock in Barrick Gold was near oversold levels. On Monday, the range was 20 to 80. Therefore, there was still some margin for additional downsides, but I am not expecting another significant stock depreciation from current prices.
Gold is now trading much lower than a few weeks ago at about $1,215 per ounce. If you consider that the cumulative average is $1,303 per troy ounce this year, it is a steep decline. Gold investores are fearful as a result of disputes between the U.S., China and Iran.
However, if the yellow metal becomes supportive in the following days, investors must know that the investment in Barrick Gold Corp. is a good choice. The company is expected to post a production growth in each of the two quarters of the current year.
(Disclosure: I have no positions in any security mentioned in this article.)
