Credit Suisse Shines On Goldcorp

The company was upgraded on its valuation as the recent gold-price-driven sector pullback provides a sufficient return to target. Credit Suisse considers Goldcorp to be its preferred senior gold stocks and sees it as best positioned to weather a lower gold price environment. The key risk to the call made by Anita Soni of Credit Suisse is “ramp up risk” with three new start-ups over the next twelve months.

The target price was increased to $33 from the previous target price of $32. The increase in the Credit Suisse target price is due to the assumed higher silver, zinc and copper prices.

Anita Soni commented on Goldcorp’s investment profile in the thesis,

“We believe GG deserves a premium valuation due to its strong balance sheet, growth profile with lower cost new mines coming on line, longer average mine life and superior dividend yield. We estimate GG will deliver the strongest FCF yield amongst the senior gold producers by 2016 driven by Penasquito and new mine start-ups. Refer to our Ideas Engine report for an overview of costs in the gold space. Goldcorp has a successful history of allocating capital and cash flow priorities are (i) funding GG’s existing growth profile; (ii) investing in high return organic growth; (iii) flexibility for selective M&A; and (iv) regular dividend growth.”

Credit Suisse raised its estimate for the fiscal year 2014 to $0.89 in earnings per share from the previous level of $0.88. Thomson Reuters has estimates for the fiscal year 2014 of $0.87 in earnings per share.

Goldcorp investors apparently did not get the memo that there was big upside here as Goldcorp shares were flat at $23.60 shortly before the close of trading. If this gold player hits Credit Suisse’s target, that would represent upside of some 40%. The stock has a consensus price target of $31.30 and a 52-week trading range of $20.54 to $29.65. It has a market cap of $19 billion.