Barrick Gold Corporation's GOLD stock looks attractive from a valuation perspective. GOLD is currently trading at a forward price/earnings of 12.68X, a roughly 17.7% discount when stacked up with the industry average of 15.41X. It also has a Value Score of A.
GOLD is currently trading at a roughly 6% discount to its 52-week high of $21.21, reached on Sept. 26, 2024, as gold prices catapulted to an all-time high on monetary policy easing and heightened geopolitical tensions.
Barrick's cheap valuation should lure investors seeking value. But is the time right to buy GOLD's shares based on its attractive valuation? Let's delve deeper.
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Thanks to the rally in gold prices, GOLD's shares have gained 13.8% in the past three months, outperforming the industry's rise of 12.8% and the S&P 500's increase of 1.9%. Its peers, Newmont Corporation NEM, Kinross Gold Corporation KGC and Agnico Eagle Mines Limited AEM, have racked up a gain of 19.5%, 12.5% and 14.5%, respectively, over the same period.
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Technical indicators for Barrick show bullish momentum. GOLD has been incessantly trading above the 200-day simple moving average (SMA) since June 18, 2024. The stock also eclipsed its 50-day SMA on Aug. 8, 2024. Notably, the 50-day SMA continues to read higher than the 200-day moving average since the golden crossover on April 29, 2024, indicating a bullish trend.
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Barrick is well-placed to benefit from the progress in key growth projects that should significantly contribute to its production. Its major gold and copper growth projects, including Goldrush, the Pueblo Viejo plant expansion and mine life extension, Donlin Gold, Fourmile, Lumwana Super Pit and Reko Diq, are currently in execution.
These projects are advancing per schedule as well as within budget, underpinning the next generation of profitable production. The restart of the Porgera mine would offer a further upside, supporting the company's planned production ramp-up through 2024.
The recently commissioned Goldrush mine is ramping up to a targeted 400,000 ounces of production per annum by 2028. Bordering Goldrush is the 100% Barrick-owned Fourmile, which is yielding grades double those of Goldrush and is anticipated to become another Tier One mine. The Reko Diq copper-gold project in Pakistan is designed to produce 400,000 tons of copper and 500,000 ounces of gold annually in its second development phase. In Zambia, the Lumwana Super Pit project is set to double the mine's production over a mine life of more than 30 years.
GOLD recently stated that the feasibility study for the expansion of its Lumwana mine is expected to be completed by the end of this year, with construction slated to commence in 2025. The expansion includes doubling throughput by twinning the existing process circuit and significantly increasing mining volumes. It could transform the mine into a long-life, high-yielding operation, placing it among the top 25 global copper producers and achieving Tier One copper mine status.
Rallying gold prices should translate into strong profit margins and free cash flow generation. Gold prices are hitting record highs this year, and the yellow metal has been among the best-performing assets. Gold has rallied roughly 29% this year, driven by strong demand from central banks, a dovish Fed interest rate outlook, global uncertainties and a surge in safe-haven demand thanks to geopolitical tensions. The recent rally in gold prices has been driven by the 50-basis-point cut in interest rates by the U.S. Federal Reserve. Gold scaled a record high of $2,685.42 per ounce on Sept. 26, 2024, on the U.S. interest rate cut and growing expectations of another reduction in November, which have weighed on the U.S. dollar. Increased tensions in the Middle East arising from the Israel and Hezbollah conflict also fueled safe-haven demand. Iran's recent missile attack on Israel has raised risks of a wider conflict in the Middle East.
Barrick has a robust liquidity position and generates healthy cash flows, which position it well to take advantage of attractive development, exploration and acquisition opportunities, as well as drive shareholder value and reduce debt. At the end of the second quarter of 2024, Barrick's cash and cash equivalents were around $4 billion. It also generated an operating cash flow of $1.16 billion and a free cash flow of $340 million.
GOLD offers a healthy dividend yield of 2% at the current stock price. Its payout ratio is 39% (a ratio below 60% is a good indicator that the dividend will be sustainable), with a five-year annualized dividend growth rate of 17.3%.
GOLD is hamstrung by higher costs, which may eat into its margins. Its cash costs per ounce and all-in-sustaining costs (AISC) -- the most important cost metric of miners -- increased significantly in 2023 due to lower production and sales volumes, along with unplanned costs and changes in the sales mix across different mine sites. In the second quarter, cash costs per ounce of gold increased around 10% year over year, while AISC rose roughly 11%. GOLD projects total cash costs per ounce of $940-$1,020 and AISC of $1,320-$1,420 per ounce for 2024, which indicates a year-over-year increase at the midpoint of the respective ranges. Increased mine-site sustaining capital spending and potentially steeper energy costs may lead to higher costs this year.
Earnings estimates for Barrick have been going up over the past 60 days, reflecting analysts' optimism. The Zacks Consensus Estimate for 2024 and 2025 have been revised upward over the same time frame.
The Zacks Consensus Estimate for earnings for 2024 is currently pegged at $1.26, suggesting year-over-year growth of 50%. Earnings are also expected to register a 34.4% growth in 2025.
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Barrick's growth initiatives, actions to boost production, solid financial health and bullish technicals paint a promising picture. A healthy growth trajectory, rising earnings estimates and a safe dividend yield are the other positives. Rallying gold prices should also boost GOLD's profitability and drive cash flow generation. Despite GOLD's attractive valuation and upbeat growth prospects, its high production costs warrant caution. Holding onto this Zacks Rank #3 (Hold) stock will be prudent for investors who already own it.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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