Newmont Corporation
Newmont Corporation (NYSE: NEM) is a gold mining company engaged in producing and exploring gold, copper, silver, zinc, and lead. It has operations in the United States, Canada, Mexico, the Dominican Republic, Peru, Suriname, Argentina, Chile, Australia, and Ghana, among other countries.
Why Should Investors Book Profit?
- Declining Fundamentals: Net income declined 58.78% YoY to USD 1.17 billion in FY21 (ended December 31, 2021) from USD 2.83 billion in FY20.
- Weak Margin Profile: In FY21, NEM’s reported operating and net margin was 10.2% and 0.1% vs. the industry median of 19.5% and 10.8%.
- Leveraged Balance Sheet: The company is more exposed to balance sheet risk than its peers, with a Debt/Equity ratio of 0.29x as of December 31, 2021, compared to the industry norm of 0.24x. Furthermore, its long-term debt-to-total-capital ratio was 21.7%, compared to the industry average of 14.1% for the same period.
- Commodity Price Risk: The highly unpredictable and unmanageable prices of gold, silver, copper, zinc, and lead on the global market significantly impact NEM's business. As a result, any unfavourable price movement could have a detrimental influence on the company's finances.
- Regulatory Risk: NEM is a gold mining company governed by several federal and state laws. As a result, tighter rules or non-compliance with mandatory legislation could harm the company's profitability.
Valuation Methodology: EV/Sales Multiple Based Relative Valuation
(Analysis by Kalkine Group)
* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation:
NEM's share price has inclined 37.63% in the past three months and is currently leaning towards the higher band of the 52-week range of USD 52.60 to USD 80.75. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 65.84.
Considering the company's declining fundamentals, weak margin profile, industry above leverage, current valuation and associated risks. We recommend a "Sell" rating on the stock at the closing price of USD 77.61, down 0.31% as of March 08, 2022.
Three-Year Technical Price Chart (March 08, 2022). Source: REFINITIVE, Analysis by Kalkine Group
* The reference data in this report has been partly sourced from REFINITIV.
* All forecasted figures and industry information have been taken from REFINITIV.
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