Earnings Preview: Goldcorp (GG)

By Feb 23, 2011, 10:47 AM Author's Blog  

Goldcorp Inc. (GG) is slated to release its fourth-quarter 2010 results on Friday, February 25 before the market opens. The current Zacks Consensus Estimate for the fourth quarter is 49 cents, representing a significant annualized growth of 95.75%.

With respect to earnings surprise, over the trailing four quarters, Goldcorp has outperformed the Zacks Consensus Estimate in two out of the four quarters. The average earnings surprise was a negative 4.93%, implying that the company has underperformed the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Third-Quarter Performance

On October 27, Goldcorp reported its third-quarter fiscal 2010 results. Reported net earnings in the quarter were $466.5 million compared with $114.2 million in the third quarter of 2009. Adjusted net earnings were $231.5 million or $0.31 per share compared with $140.6 million or $0.19 per share, in the third quarter of 2009.

Revenues in the reported quarter jumped 28% year over year to $885.8 million, on gold sales of 568,100 ounces.

The company reaffirmed its 2010 production guidance of approximately 2.55 million ounces of gold. Cost performance on a company-wide basis remains very strong, with total cash costs for the year now expected at below previous guidance of approximately $350 on a by-product basis and $450 on a co-product basis.

Agreement of Estimate Revisions

In the last 30 days, out of the 16 analysts covering the stock, 4 analysts increased their EPS estimates, while 1 analyst decreased its EPS estimate, for the fourth quarter of fiscal 2010.

In the last 30 days, out of the 14 analysts covering the stock, 2 analysts increased their EPS estimates, while 1 analyst decreased its EPS estimate for fiscal 2010. For fiscal 2011, out of the 20 analysts covering the stock, 3 analysts increased their EPS estimates and 3 analysts decreased their EPS estimates.

Magnitude of Estimate Revisions

Despite the positive trend, earnings estimates for the fourth quarter, in the last 30 days, remained flat at 49 cents. Similarly, for fiscal year 2010 and 2011, the earnings estimate revision remained flat at $1.28 and $2.07, respectively.

Goldcorp’s gold reserves surged 23% to 60.1 million ounces in fiscal 2010. Measured and indicated gold resources also climbed 13% to 25.7 million ounces in 2010, following recent discoveries at its gold projects in Argentina and Canada. In order to further increase its reserves and resources, add new discoveries and expand existing discoveries, Goldcorp intends to invest an additional $170 million in fiscal 2011.

The company also reported one of the largest silver holdings in the sector with proven and probable silver reserves and measured and indicated silver resources of 1.3 billion ounces and 457.6 million ounces, respectively.

In February 2011, Goldcorp sold its 38.6 million in Osisko Mining Corporation (Osisko), displaying its continued success in redeploying internal capital from non-core assets to fund the company’s existing project pipeline.

Goldcorp has development projects throughout the Americas, including the Penasquito mine in Mexico and a stake in the giant Pueblo Viejo project in the Dominican Republic.

Our Take

We are optimistic about Goldcorp’s Penasquito mine in Mexico, which commenced commercial production in September 2010. In addition, Goldcorp divested many of its non-core assets, generating huge cash flows, which are likely to be used for future growth projects.

However, Goldcorp is exposed to various political and economic risks. Goldcorp also faces foreign exchange risk as it pays most expenses in local currencies and sells in dollars.

Based in Vancouver, Canada, Goldcorp Inc. is a leading gold producer engaged in gold mining and related activities including exploration, extraction, processing and reclamation. Goldcorp has operations in Canada, the US, Mexico and Central and South America. Apart from gold, the company also produces copper and silver. It competes with the likes of AngloGold Ashanti Ltd. (AU), Barrick Gold Corporation (ABX) and Newmont Mining Corp. (NEM).

Goldcorp follows an aggressive acquisition strategy for attaining growth similar to other industry players like Barrick Gold Corporation and Kinross Gold Corporation (KGC). The acquisition of Glamis Gold Limited and Placer Dome’s Canadian assets were the major milestones for the company.

We maintain our long-term Neutral recommendation for Goldcorp. Currently, it holds a short-term Zacks # 3 Rank (Hold) on the stock.

GOLDCORP INC (GG): Free Stock Analysis Report

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