NEW YORK (TheStreet) -- Barrick Gold (ABX) will release its second-quarter earnings report on Wednesday. In the past several weeks the company's stock gained some steam mainly due to the recovery of gold. Its stock reached $18.69, a 3.7% increase since the beginning of July.
Shares are currently at $18.69, up 6% for the year to date. But this rally could end if the company fails to meet its quarterly targets. Let's see review the key issues related to its upcoming earnings report.
Due to the rally of gold prices in the past couple of months, other leading gold producers also recovered: Goldcorp (GG) closed at $28.44 Monday, up 31% for the year to date, and Yamana's (AUY) - Get Yamana Gold Inc. Report stock closed at $8.39, down 2.7% for the year to date.
First, Barrick estimated its annual production target at 6 million to 6.5 million ounces of gold. Taking into account the amount of gold produced back in the first quarter, its second-quarterly output reached 1.5 million ounces of gold, as indicated in the table below, using data from the company's Web site.
This means quarterly production fell by 14%, year over year. Moreover, copper production dropped by 20% compared to the parallel quarter last year.
Second, in the first quarter, Barrick Gold's all-in sustaining costs per ounce of gold was only $833 -- nearly 11% below last year's levels. But since the company's annual target is estimated between $920 and $980 per ounce of gold, we should see a steady rise in production costs in the coming quarters. In the past quarter, its cost per ounce may have reached $950 or a 3.4% gain, year over year.
Third, Barrick's progress in developing its projects is also a key factor that could have an impact on the direction of its stock. Specifically, Barrick keeps expanding its Nevada mines such as Cortez and developing projects including Goldrush. These mines could increase its output in the coming years. Conversely, Barrick's failed attempts to start developing its Pascua-Lama mine may keep curbing down its valuation. Once this mine's construction resumes, it could put Barrick's investors at ease. This quarterly report will show any progress in developing and expanding these mines.
Based on the above, if Barrick doesn't reach these targets, its stock could resume its downward trend as it will put into question the company's ability to achieve its annual goals.
At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.
At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time. TheStreet Ratings team rates BARRICK GOLD CORP as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:
"We rate BARRICK GOLD CORP (ABX) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, disappointing return on equity and weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- BARRICK GOLD CORP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. During the past fiscal year, BARRICK GOLD CORP reported poor results of -$9.63 versus -$0.35 in the prior year.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Metals & Mining industry. The net income has significantly decreased by 89.6% when compared to the same quarter one year ago, falling from $847.00 million to $88.00 million.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Metals & Mining industry and the overall market, BARRICK GOLD CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has decreased to $585.00 million or 46.08% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- 48.63% is the gross profit margin for BARRICK GOLD CORP which we consider to be strong. Regardless of ABX's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, ABX's net profit margin of 3.34% is significantly lower than the industry average.
- You can view the full analysis from the report here: ABX Ratings Report
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