Shine Bright Like A Gold. Because It is a Good Time to Buy Newmont Stock.
Mar 17, 2023
The stock of gold miner Newmont has finally begun to perform as expected, and it is still possible to purchase.
We suggested in September that Newmont (NEM) was undervalued and that the price of gold may rise, both of which would eventually help lift the stock. Initially, shares didn't move much, losing 4.5% from when we recommended it and the low point in early March. That may be attributed to a slight increase in the price of gold, but that didn't necessarily assist because investors began selecting riskier assets as the economy appeared to be recovering.
Yet recently, the price of Newmont has begun to rise. Since that March low, it has increased by nearly 9.6%, while the S&P 500 has remained almost unchanged. Credit investors are seeking safe havens due to problems in the banking industry for the rise in gold prices. The fact that the issues at Silicon Valley Bank and First Republic Bank (FRC) threatened to slow economic development and cause the Federal Reserve to stop raising interest rates, maybe as soon as this week's meeting, doesn't hurt either. From March's start to Thursday's closing, gold rose 4.7%.
The company stated on its fourth-quarter earnings call that the high end of its guidance range would slightly increase this year's production over last year's, so yes, factors like production do matter. However, if Newmont can sell the same amount of gold for a higher price, it will increase overall sales. Sales are already predicted by analysts to increase by 3.7% from last year to $12.36 billion this year.
According to analyst Mike Dudas of Vertical Research Group, the price of gold is what matters the most and will ultimately determine his sales projections.
As the sales gain was achieved without adding any additional effort, Newmont's profitability should likewise increase. Remember, there are other factors besides gold prices that affect earnings. The firm reported fourth-quarter revenues of $3.2 billion in February, above projections of $3.09 billion. Still, the gross margin fell short of expectations due to the cost of sales of $1.78 billion, which was more than anticipated at $1.5 billion. Increased wages, rising energy prices, and other factors contributed to greater expenses, resulting in a net loss.
Yet, it's now probable that gold prices will rise, and those price rises will slow down. According to FactSet, analysts anticipate Ebitda, or earnings before interest, tax, and non-cash expenditures, will increase 11.4% to $5.07 billion this year.
"As gold prices move higher and costs moderate, you should see some margin and cash-flow growth for the company, and that's what investors will be looking at," Dudas says.
As a result, Newmont's stock still appears affordable despite its recent surge. Below its five-year average of nine times, it trades at 6.7 times enterprise value to Ebitda. Even while FactSet's average analyst price goal of $55.87 indicates a gain of 22%, Dudas has a $60 price target on the stock, up 31% from Thursday's finish of $45.78.
There's no need to wade knee-deep through a stream. It appears that Newmont is a more straightforward method for locating gold.