Barrick Gold Up 90% In 6 Months But More Gains Are On The Way
Despite a splendid rise of almost 90% since its March 13 lows of this year, at the current price of $30 per share, we believe Barrick Gold stock (NYSE: GOLD) has further upside left. Barrick Gold’s stock has increased from $16 to $30 off its recent bottom, much higher than the S&P 500 which increased a little over 50% from its recent lows. The stock has been able to outperform the broader market over the last 6 months due to a sharp rise in gold prices during the current pandemic, which benefited Barrick Gold as 94% of its revenue comes from the yellow metal.
The stock currently is 107% above the levels at which it was at the end of 2017 and it has already surpassed the pre-Covid (February 2020) high of $22. Despite such a healthy rise, we believe that the company’s stock still has a modest upside of around 10%, driven by the outlook for gold prices to remain at elevated levels while copper prices are likely to rebound post the current crisis. Our dashboard What Factors Drove 107% Change In Barrick Gold Stock Between 2017 And Now? has the underlying numbers.
Some of the stock price rise during the 2017-2019 period is justified by the 16% growth in revenues. Barrick Gold revenues increased from $8.4 billion in 2017 to $9.7 billion in 2019, with all the increase coming in 2019, mainly driven by the acquisition of Randgold Resources GOLD . This was offset by a 10.7% decrease in profitability as net income margin declined from 10.5% in 2017 to 9.3% in 2019. This decline was mainly because of margins dropping significantly in 2018 on the back of a decline in revenues, lower grade ores, and impairment charges. Margins recovered in 2019 but stayed slightly shy of the 2017 level. On a per share basis, adjusted earnings decreased from $0.75 in 2017 to $0.51 in 2019.
Despite the drop in EPS, the stock price continued to increase due to rise in global gold prices and formation of the Nevada joint venture with Newmont NEM . This led to an increase in P/E multiple from 19x in 2017 to 37x in 2019. The multiple shot up further this year and currently stands at little less than 60x, as the stock price increased with the further rise in gold prices during the pandemic.
Trigger for Further Upside?
A slowdown in economic and industrial activities and expectations of a global recession, following the outbreak of coronavirus this year, has increased gold’s value as a hedging instrument. Global gold prices have increased from about $1,500/ounce at the beginning of 2020 to over $1,940/ounce currently due to higher demand. With rising investment in the yellow metal by major central banks and expectations of interest rates remaining low, gold prices already saw a sharp rise in 2020. This trend was further boosted by the current Covid-19 crisis. This was reflected in in the company’s Q2 2020 results where Barrick Gold’s revenue increased 48% y-o-y while net earnings shot up over 80%.
The gradual lifting of lockdowns over recent months and easing of global supply bottlenecks is likely to help a large company like Barrick Gold which operates across different countries and has a global supply chain. This is expected to boost shipments post the crisis. Though gold prices could drop marginally post-Covid, a subdued economic growth outlook could avoid any significant drop in gold price. Copper prices are likely to rebound once demand starts picking up post-Covid. Higher shipments could offset a slight drop in gold price realization. Barrick Gold is seeing a rise in revenue and margins during the current crisis in 2020 when most industries are adversely affected. Also, with investors expecting continued healthy growth in 2021 due to the Nevada JV and higher production, we believe Barrick Gold’s stock is set to see further upside of about 10% from its current level. According to Trefis, Barrick Gold Valuation works out to $32 per share.
For further insight into the gold mining space, see how Barrick Gold’s rivals Newmont and Freeport-McMoRan compare with each other.
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