"Our target price of $24 is based on an even weighting of our $21 OpCFa valuation and $27 NAV valuation. We apply a 22x multiple to FY15/16E OpCFa of 95 cents per share. Our NAV valuation is based on 1.7x our DCF of $16.84 with net cash and marketable securities of $(3.19) added at par," analysts said.
"Our OpCFa is based on implied mine life and free cash flow generating ability" they noted.
"We believe there are several risks to Goldcorp's achievement of our target price. Goldcorp is subject to commodity price and foreign exchange risk as fluctuations in the gold price or foreign exchange rates will impact Goldcorp's profitability," analysts continued.
Additionally, analysts detailed risks including "inflationary pressures particularly for fuel, consumables, equipment and labour, fluctuations in ore grade and recovery rates or changes to the mining sequence [that could] impact production and cost forecasts, and [exposure] to development risk as [Goldcorp] brings the Peñasquito mine to full capacity and develops its pipeline of growth projects."
Gold futures for February delivery were down 0.8% to $1,198 an ounce at 12:44 p.m. on the COMEX in New York.
Gold futures posted the longest slump in five weeks yesterday on concern that the Federal Reserve is moving closer to raising U.S. interest rates, crimping demand for the precious metal as an alternative investment. according to Bloomberg.
Separately, TheStreet Ratings team rates GOLDCORP INC as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:
"We rate GOLDCORP INC (GG) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, notable return on equity and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, weak operating cash flow and feeble growth in the company's earnings per share."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- GG's debt-to-equity ratio is very low at 0.16 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Despite the fact that GG's debt-to-equity ratio is low, the quick ratio, which is currently 0.62, displays a potential problem in covering short-term cash needs.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Metals & Mining industry and the overall market on the basis of return on equity, GOLDCORP INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- 36.09% is the gross profit margin for GOLDCORP INC which we consider to be strong. Regardless of GG's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, GG's net profit margin of -5.12% significantly underperformed when compared to the industry average.
- Net operating cash flow has decreased to $192.00 million or 29.92% when compared to the same quarter last year. Despite a decrease in cash flow of 29.92%, GOLDCORP INC is in line with the industry average cash flow growth rate of -29.96%.
- 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 980.0% when compared to the same quarter one year ago, falling from $5.00 million to -$44.00 million.
- You can view the full analysis from the report here: GG Ratings Report