Canaccord Genuity Upgrades Goldcorp Inc.
- By Alberto Abaterusso
Yesterday, Sept. 29, we received the news that Goldcorp Inc. (GG) was upgraded by Canaccord Genuity.
The Canadian global investment banking and financial services company raised its rating on shares of Goldcorp from a previous "hold" rating to "buy."
The reason for this upgrade on the Canadian stock is that Canaccord Genuity "expects upward potential for shares as FCF grows rapidly in 2019," reported StreetInsider.com.
Warning! GuruFocus has detected 3 Warning Signs with GG. Click here to check it out.
The intrinsic value of GG
As you can see in the chart below, this is the fourth upgrade Goldcorp Inc. got over the last 12 months. It is a sign that in general analysts believe in the company's strategy of shareholder value accretion through the increase of gold reserves by 20%, the reduction of the all-in sustaining cost per ounce by 20% and the increase in the production by 20% that Goldcorp targets in five years' time.
Source: Yahoo Finance
Goldcorp will accomplish the gold production target through the following strategy:
By bringing assets such as Eleonore Mine and Cerro Negro up to their nominal capacity in 2018.
By investing in brownfield projects like the Borden project and the Porcupine complex, both are in the Ontario province of Timmins.
By investing in Greenfield projects like the Coffee project which is located in the Yukon territory in Canada. In the Coffee project Goldcorp will invest approximately $300 million to obtain an increase of 200,000 ounces of gold in the company's total annual production.
By strategic agreements of joint venture with other gold producers like the one that Goldcorp reached with Barrick Gold Corp. for the exploitation of the Maricunga belt in Chile, which includes the Cerro Casale project, one of the largest undeveloped gold and copper deposits in the world.
Concerning the target of cutting costs, Goldcorp Inc. plans to drag AISC down to $700 per ounce from $850 per ounce of metal sold. The company targets to cut AISC of $50 per ounce through economies of scale with which company's fixed costs will be spread on a 20% production growth, and to cut another $100 per ounce through sustainable efficiencies as the miner expects significant reductions in operating, general and administrative expenses as well.
Goldcorp traded Friday around $12.96 per share with a market capitalization of $11.29 billion.
The Canadian gold stock is down trending and has lost approximately 4.7% year to date.
Goldcorp has a price-book ratio of 0.75, a price-sales ratio of 2.86, a price-earnings ratio of 22.12 and an EV-Ebitda ratio of 8.55.
The Enterprise Value is $14.35 billion that, divided by a total volume of gold reserves of 41.83 million, yields an EVO (Goldcorp's Enterprise Value per ounce of gold reserve) of $343.06, which is not one of the lowest in the gold stock industry at the moment considering that Barrick Gold Corp. - the biggest producer of gold in the world - has an EVO of $301.92.
As of Saturday, Goldcorp has a recommendation rating of 2.6 out of 5, and analysts have set an average target price of $16.76 per share. This is a mean of 18 estimates of analysts who were surveyed. The estimates on Goldcorp's target price range between a low of $12 per share and a high of $21 per share.
Disclosure: I have no positions in any stock mentioned in this article.
This article first appeared on GuruFocus.
Warning! GuruFocus has detected 3 Warning Signs with GG. Click here to check it out.
The intrinsic value of GG