RBC’s research team pointed out that given the different capital structures and varying levels of ongoing capital expenditures at the stocks in their coverage universe, they believe evaluating precious metal companies on an enterprise value/adjusted cash flow basis provides for a more level playing field and reduces the potential for mispricing.
The market is clearly edgy, as evidenced by current volatility. Adding some low-priced gold stocks to a portfolio may make good sense in case earnings turn out poor and the situation in the Middle East continues down a rocky road.
The firm tweaked some of their price targets in the gold sector, but many of those price targets remained firm. Here are the top gold mining stocks rated Overweight at RBC.
Agnico Eagle Mines Ltd. (NYSE: AEM) recently completed its joint acquisition of Canada’s Osisko Mining and its Canadian Malartic mine, which the company purchased together with Yamana Gold. The Osisko deal guided investors on both companies in recent months, so any positive news on the performance of the Malartic mine will have an immediate effect on valuation.
Most Wall Street analysts feel that consolidation at attractive prices could become much bigger in the space. Investors are paid a 0.9% dividend. The RBC price target is raised to $49 from $43. The Thomson/First Call consensus price target is $38.29. The stock closed Thursday at $39.69 a share.
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Barrick Gold Corp. (NYSE: ABX) is another top name rated Outperform at RBC. Between asset sales and new equity, the company has raised nearly $4 billion in liquidity. Coupled with a lower dividend payout of $235 million and reduced capital expenditures, Barrick should generate about $1.2 billion in free-free cash flow. That is a number investors can be excited about.
Barrick’s common stock dividend pays its investors a 1.1% yield. The RBC price target is lowered to $23. The consensus target is $20.62. Shares closed Thursday at $18.59.
Goldcorp Inc. (NYSE: GG) is another name rated Outperform that ranks high at RBC. The company operates as a gold producer involved in the exploration, development and acquisition of metal properties in Canada, the United States, Mexico and Central and South America.
In recent years, Goldcorp has been altering its mine plans, cutting spending and disposing assets in order to reduce costs and focus on the most profitable production. Now those efforts have begun paying off. Investors are paid a 2.2% dividend. RBC has a $37 price target, and the consensus target is $30.62. Goldcorp closed Thursday at $27.96.
Kinross Gold Corp. (NYSE: KGC) is a top small cap name for investors looking for gold exposure and the ability to buy more shares. The company plans to severely chop capital spending by as much as $555 million this year. With problematic cash flow issues, this makes good sense.
Kinross also may be a nice acquisition for a company looking to increase reserves, although real sector consolidation has been unseen to date — despite the various merger rumors. The RBC price target is dropped to $5.75, and the consensus figure is at $5.44. Kinross closed Thursday at $4.27.
Yamana Gold Inc. (NYSE: AUY) rounds out the top five names to buy at RBC. The company has been known to use extremely conservative assumptions in declaring its reserves, and as a result, it downgraded very few ounces last year. In fact, Yamana’s reserves were essentially flat year-over-year. Furthermore, the company’s resources — a category of in-ground gold that is less restrictive — grew meaningfully year-over-year.
Yamana’s investors are paid a 1.7% dividend. RBC has a $10 price target and the consensus target is $10.89. Yamana closed Thursday at $8.23.
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The drop in gold can truly been seen if you just consider ETF outflows and price drops. From the highs posted in the fall of 2011 to today, the price of SPDR Gold Shares (NYSEMKT: GLD) is still down a whopping 30%.
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