In an Oct. 25 research note, analyst Andrew Kaip reported ROTH Capital Partners upgraded its rating on Goldcorp Inc. (G:TSX; GG:NYSE) to Outperform based on the market's recent "over-reaction," which resulted in an 18.7% drop in its stock price.
The company is trading at a "significant" discount to peers, at around $8.49 per share. In comparison, ROTH's target price on Goldcorp is $13 per share. "We think valuation and 2019 outlook provide more reward than risk at these levels," Kaip asserted.
In addition to the drop in valuation, Kaip wrote, it is also noteworthy that Goldcorp increased production guidance for Q4/18 to 620,000 ounces, which ROTH "is reasonably comfortable with." To attain that quantity, the company is guiding for 50% gold recovery. Increased throughput or grades, for example, are expected at a number of the company's mines.
Kaip also noted the following:
- At Peñasquito, the carbon-free flotation plant is running, the pyrite leach plant is commissioning and grades should improve.
- At Cerro Negro, Q4/18 grades are projected to be 14 grams per ton (14 g/t) gold, unlike those in Q3/18, which were a "disappointment," around 10.75 g/t gold.
- At Mariana Central, production rates should rise by year-end, as it now has an auxiliary shift in places and continues ramping up.
- At Éléonore, processing rates are expected to improve, as are grades, to 6.91 g/t gold.
Kaip stated that investor sentiment for Goldcorp should shift to the positive, given its production is forecasted to rise in 2019, to 3.6 million ounces of gold equivalent from 3.0, and lead to increased cash flow year over year. However, this change in viewpoint likely will not happen until Q4/18 results are released in 2019.
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Disclosures from BMO Capital Markets, Goldcorp, October 25, 2018
IMPORTANT DISCLOSURES
Analyst's Certification
I, Andrew Kaip, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and their affiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service to clients.
Analysts employed by BMO Nesbitt Burns Inc. and/or BMO Capital Markets Limited are not registered as research analysts with FINRA. These analysts may not be associated persons of BMO Capital Markets Corp. and therefore may not be subject to the FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Company Specific Disclosures
Disclosure 5: BMO Capital Markets or an affiliate received compensation for products or services other than investment banking services within the past 12 months from Goldcorp.
Disclosure 6C: Goldcorp is a client (or was a client) of BMO Nesbitt Burns Inc., BMO Capital Markets Corp., BMO Capital Markets Limited or an affiliate within the past 12 months: C) Non-Securities Related Services.
Disclosure 8A: BMO Capital Markets or an affiliate has a financial interest in 1% or more of any class of the equity securities of Goldcorp.
Disclosure 8C: BMO Capital Markets or an affiliate has a financial interest in 0.5% or more in the issued share capital of Goldcorp.
Disclosure 9B: BMO Capital Markets makes a market in Goldcorp in United States.
Disclosure 16: A research analyst has extensively viewed the material operations of Goldcorp.
Disclosure 17: Goldcorp has paid or reimbursed some or all of the research analyst's travel expenses.
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