Wednesday, April 23, 2014

Barrick Gold Corp. 2

I own this stock of Barrick Gold Corp. (TSX-ABX, NYSE-ABX). This is a big gold mining company that I have followed for years. It was on some dividend growth lists at different times and has been covered by the Investment Reporter. I bought some of this stock in April 2013 because its stock price had fallen hard. I believed the market over reacted. I just bought 100 shares as I am living off my portfolio and do not have much to invest.

When I look at insider trading, I find no insider selling and $8M of insider buying over the past year. This shows some confidence in the company. The is also some insider ownership where the CEO owns shares worth around $1.3M, an officer of the company owns shares worth around $7.4M and the Chairman owns shares worth around $39M.

There are stock options, but also other stock option type vehicles called Rights Performance Restricted Share Units, Rights Restricted Share Units and Rights Deferred Share Units. Last year outstanding shares were increased by 44,000 because of stock options and these options had a book value of $1M. This small number of shares shows up a 0.00% of the outstanding shares. In 2012, outstanding shares were increased by 685,000 shares for stock options that had a book value of $18M and were 0.07% of outstanding shares.

Since there was no profit over the last two years, I look at the 10 year low, median and high median Price/Earnings Ratios which are 12.83, 13.78 and 15.33. The current P/E Ratio is 16.54. This test would imply the stock price is high. I think that this test could be rather unreliable.

I get a Graham price of $17.97 based on the 2014 earnings estimate of $1.16 CDN (or $1.06 US$) and Book Value per Share of $12.36 CDN$. The 10 year low, median and high median Price/Graham Price Ratio are 0.99, 1.65 and 1.37. The current P/GP Ratio based on a stock price of $19.21 is 1.07. This stock price test suggests that the stock price is reasonable.

The 10 year Price/Book Value per Share Ratio is 2.24 and the current P/B Ratio is only 69% of this value at 1.55. This stock price test suggests that the stock price is relatively cheap. This is based on a BVPS of $12.36 and a stock price of $19.21. (Note that the BVPS fell some 43% in 2013.)

If you look at 5 year median dividend yield, it is 1.08% and the current dividend yield at 1.14% is some 6% higher so this stock test suggests that the stock price is reasonable. The historical average dividend yield is at 1.10% and the current dividend yield at 4% higher suggests that the stock price is reasonable.

It is only when you look at Price/CFPS and Price/Sales Ratios (and Price/B Ratio above) that the stock price looks relatively cheap. The 10 year median P/CF Ratio is 11.66 and the current P/CF Ratio at 6.13 is some 47% lower. The 10 year median P/S Ratio is 4.36 and the current one of 1.93 a value some 56% lower. These tests are using CDN$ values. You get the basically the same results using US$ values. So on some relative levels the stock price is cheap.

When I look at the analysts' recommendations, they cover all types of Strong Buy, Buy, Hold, Underperform and Sell. Most of the recommendations are in the Hold category and the consensus recommendations would be a Hold. The 12 month stock price consensus is $20.60. This implies a total return of 8.38% with 1.14% from dividends and 7.24% from capital gains. However, there is a big range in the 12 month stock price ranging from $12.70 to $28.00. This matches the analysts' recommendations which are also rather broad.

There are a number of articles about this company and Newmont Mining Corp merging. Who knows if this will happen? There is a recent article in Financial Post about the talks breaking down. A recent article in talks about the company cutting compensation packages. At the end of last year, CTV News talked about Peter Munk retiring from the company.

On some relative levels the company is cheap, but it is also in trouble. I realize this stock maybe risky, but I bought it because it is interesting at the moment. I will not keep it for the long term. See my spreadsheet at abx.htm.

This is the second of two parts. The first part was posted on Tuesday, April 22, 2014 and is available here. The first part talks about the stock and the second part talks about the stock price.

Barrick Gold Corporation is a gold mining company with a portfolio of operating mines, and advanced exploration and development projects located across five continents. Its web site is here Barrick Gold.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

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