UBS analyst Matt Murphy weighed in today on Canadian mining firms Barrick Gold Corporation (USA) (NYSE:ABX) and Goldcorp Inc. (USA) (NYSE:GG), offering compelling reasons for his neutral ratings and summarizing expectations.
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, Murphy has a yearly average return of 37% and an 86% success rate. Murphy is ranked #485 out of 3742 analysts.
Barrick Gold Corporation (USA)
Murphy reiterated a Neutral rating on shares of Barrick Gold, while boosting the price target to $15 (from $8.50), which implies an upside of 10% from current levels.
Murphy noted, “ABX has a goal to reduce debt this year by $2B, with a medium-term debt target below $5B. We believe aggressive debt reduction through free cash flow growth and non-core asset sales could continue to be a positive catalyst for ABX. ABX could even achieve its debt reduction target by the end of 2017 if we were to assume ABX could sell its stake in Acacia, Kalgoorlie and Porgera for a total of $1.8B, plus the recent $610M in proceeds from the sale of Bald and Round Mountain, plus our $2.2B in free cash flow over the next two years.”
“Our 2016E and 2017E EPS rose as we modelled lower operating costs at Lumwana and lower finance costs following the completion of ABX’s $750M debt tender offer. Our net asset value (NAV) rose due to revised project assumptions at Cortez and Goldrush as well as lower cost assumptions at Lumwana,” the analyst concluded.
Out of the 9 analysts polled by TipRanks (in the past 3 months), 2 rate Barrick Gold stock a Hold, while 2 rate the stock a Buy. With a small upside potential of one percent, the stock’s consensus target price stands at $13.75.
Goldcorp Inc. (USA)
In addition, Murphy downgraded shares of Goldcorp from Buy to Neutral, while slightly raising the price target to $17 (from $16.50), which represents a potential upside of 8% from where the stock is currently trading.
The analyst explained, “GG’s most recent three-year guidance reduced street expectations for production growth. We now forecast a 3yr production CAGR of -3.0%, slightly below comps. Delays to development at Cochenour also raise concerns about the production outlook at Red Lake. However we believe several organic growth initiatives could proceed to improve the company’s production outlook. For example, GG could approve the pyrite leach project at Peñasquito and materials handling system at Musselwhite by mid-year and we would expect both projects to have relatively attractive IRRs.”
“Our EPS estimates increased as we reduced Los Filos throughput and cost assumptions. However, our NAV fell on shorter mine life assumptions at Los Filos and adjustments to our long-term expectations at Red Lake,” the analyst added.
Out of the 9 analysts polled by TipRanks (in the last 3 months), 1 is bullish on Goldcorp stock, 7 are neutral, and 1 is bearish on the stock. With a potential downside of nearly 5%, the stock’s consensus target price stands at $14.97.