Why Goldcorp Could Be Worth 50% More

Credit Suisse’s Anita Soni reinstated Goldcorp’s rating at Outperform with a $24.00 price target. The U.S. price was $16.18, and then there is that 3% or so yield to consider. What investors may want to consider here is that Goldcorp has a market value of nearly $14 billion. Another consideration is that Goldcorp shares could rise to $24 and still have to run almost another 20% higher from there before hitting a 52-week high.

Credit Suisse also noted that Goldcorp’s current $500 million per year dividend is covered down to $1,150 per ounce in gold in 2016. That assumes that no alternative accretive acquisition opportunities arise. Goldcorp was shown as having a lower debt to market cap considerably (about 22%) versus 36% for Newmont Mining Corp. (NYSE: NEM) and 75% for Barrick Gold Corp. (NYSE: ABX). Its free cash flow yield was also much better than Newmont and Barrick.

Soni’s upside in Goldcorp showed that the company has been bolstering its balance sheet with expected free cash flow growth to come on the heels of it selling its Tahoe stake for close to $1 billion. Credit Suisse actually sees net proceeds in U.S. dollar terms of roughly $765 million.

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The firm further rolled in its revised metal prices and currency exchange estimates. While the $24 price target is almost 50% higher, it was actually $1 shy of Credit Suisse’s prior target. Goldcorp has a consensus price target of $24.19.

Credit Suisse further sees a 2.7% net asset value reduction to $13.76 per share and a 2015 and 2016 operating cash flow analysis reduction to $1.17 per share from $1.27 previously. The primary drivers of their estimate revisions were a stronger exchange forecast of Canadian dollars and weaker near-term silver and copper price forecasts.

The Tahoe sale was shown to add liquidity to Goldcorp’s balance sheet, which remains the strongest in the seniors. Credit Suisse expects it to end this quarter with about $1 billion in cash and about $3.8 billion in debt. Goldcorp also increased its credit facility to $3 billion from $2 billion on June 11 and extended the term to 2020.

Goldcorp was last seen up 2% at $16.52 on Monday, against a 52-week trading range of $15.77 to $29.65. Again, Goldcorp has a consensus analyst price target of $24.19.

Newmont was seen up 1.3% at $23.98 Monday morning, against a 52-week range of $17.60 to $27.90. Newmont has a consensus target price of $27.37.

Barrick Gold shares were up 2.2% at $10.80 Monday morning. Its 52-week range is $10.04 to $19.49, and its consensus price target is $13.58.

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If Credit Suisse turns out to be right in its analysis, there is a lot more implied upside in Goldcorp than in other gold majors.