Barrick Gold Stock Forecast: Why Barrick Gold’s Strong Upsurge Will Continue

ayushThe article was written by Ayush Singh Tip Ranks #4 Financial Blogger – Senior Analyst at I Know First

 

Barrick Gold Stock Forecast

  • abx logo pngIncreasing gold prices is a tailwind for Barrick Gold.
  • The company is working aggressively to reduce debt.
  • Barrick Gold can improve cash flow even if gold prices remain flat.
  • I Know First foresees a bullish signal for ABX

Although there is no direct correlation between Gold prices and the stock market, they are usually inversely proportional. With stock market heading lower in 2016, gold prices have shot up considerably. Since I’m currently bearish on the stock market, I expect the market to continue its downward spiral. Hence, investors can find haven in gold stocks as increasing gold prices will probably push the stocks in the sector higher. One of my favourite picks in the industry is Barrick Gold (ABX)

Barrick Gold Stock Forecast

(Source: Google Images) 

Successfully achieving its annual goals

Barrick Gold performed very well in 2015, as the stock was up around 3.5%. 2016 was also off to a great start as Barrick Gold is up 70% year to date as well. The company recently reported its Q4 earnings indicating that there may be better times ahead for the stock. In the latest reported quarter, Barrick Gold’s EPS came in at $0.08, beating the analysts’ estimate of $0.06. Revenue of $2.24 billion also beat the sales estimates by $20 million.

According to the report, Barrick Gold successfully accomplished its yearly production target. The company posted the gold output of 6.12 million ounces, slightly more than its guidance of 6 million ounces annually. The company’s copper production touched 511 million pounds, which lies between its guidance of 480 and 520 million pounds. The successfully achieved goals will help to express some assurance in management.

Furthermore, Barrick Gold completed its strategy to reduce $3 billion from its debt previous year, which lightened its debt load. Recently, In January, the company sold its 50 percent interest in the Round Mountain project and its whole strut in Bald Mountain mine to Kinross Gold Corporation for around $610 million in cash.

Barrick Gold Stock Forecast

(Source: GFMS; Thomson Reuters Eikon)

With production likely to decline in the coming years, investors can expect gold prices to move higher. However, even if gold prices stay at the current levels, investors can expect Barrick Gold’s cash flow to increase due to declining production costs.

Barrick Gold’s year AISC guidance was amid the bottom for the industry at $850, compared to Goldcorp’s 2015 AISC guidance of $875. If the company were to reach close to this mark and even focus in order to achieve a poorer target for 2016, this could drive its profit margins.

Barrick Gold Stock Forecast

(Source: Metal Focus “World Gold Council”)

Reducing Debt is time-consuming process

Barrick Gold has a top line formation of around 88 percent gold and 12 percent copper. In 2015, both gold, as well as copper, witnessed prominent drops. Despite these conditions, Barrick Gold remains a practically a clean play. However, Kinross Gold has a slight lead over Barrick Gold in terms of Gold composition of around 7 percent.

Barrick Gold Stock ForecastThe company has now reduced its long-term debt to $9.5 billion and only has $250 million due in the approaching two years, for which cash flow can more than cover it. The company has significantly reduced its debt and plans to further reduce it by $2 billion this year. Given that the company is actively looking to reduce debt shows that it expects its cash flow to increase significantly this year.

The company also figured various new partners and made a financially comprehensive decision by attaining its leadership through long-term stock strategies. These long-term decisions indicate that the company has a lot of growth opportunities and a bright future. This will also bear out to be beneficial if the gold continues to move upward, as China’s economy lingers to slow down and has purling effects in the U.S. markets.

Lowering Gold Price Estimates

Barrick Gold strategies to reduce its gold price estimates to $1,000 for 2016 and $1,200 for the long term. Earlier, Barrick’s price expectations were $1,250 for the short terms and $1,300 for the long term. The decline was trailed by asset impairment charges as well as goodwill impairment charges of $1 billion and $1.8 billion respectively.

The company has been thinking about evolving Pascua-Lama over the prior two decades and has used billions in the scheme. But two years ago, the miner stopped construction bustle due to the weakening in bullion prices, rising development prices, hostility from environmentalists, and various geopolitical concerns in South America.

However, keeping in mind the most recent update, the company became the first Canadian miner to decrease the price of its assets this year. With gold prices expected to increase, Barrick Gold can outperform its guidance and continue performing better going forward.

Due to the bright prospects of gold, analysts have been revising their EPS estimates for Barrick Gold and expect the company to report strong earnings growth despite slowdown in sales. According to TipRanks, most analysts and financial bloggers are bullish on Barrick Gold and expect the stock to continue outperforming.

Barrick Gold Stock Forecast

Conclusion

Although Barrick Gold is a highly leveraged company, most of the company’s debt is long-term and isn’t due till 2018. However, despite the long-term debt, Barrick Gold is working aggressively on reducing its debt, which is a tailwind and it will save the company hundreds of millions of dollars in interest expenses.

If the company manages to meet its debt-reduction target for 2016, it can deliver more upside. Although after the 70% year to date jump, Barrick Gold is trading near 52-week highs, I think the stock can continue performing better amid improving gold prices. A beta of -0.04 indicates that Barrick Gold can outperform the market in case of a bear market. Since I expect the market to continue moving lower, I think Barrick Gold is a good buy despite the recent upsurge.

Barrick Gold Stock ForecastMy long-term bullish view on Barrick Gold is echoed by the algorithmic forecasts of I Know First. I Know First uses an advanced state of the art algorithm based on artificial intelligence and machine learning to foresee market performance for more than 3,000 markets including stock forecasts, world indices, commodities, interest rates, ETFs, and currencies.  Dr. Roitman, who created the algorithm, created rules for entry for a stock such as Apple or EA. Using this trading strategy, an investor should buy a stock if the last 5 signal strength’s average is positive and if the last closing price is above the 5-day moving average price. When both of these conditions are met, it is a good time to initiate a position in the stock.

The algorithm generates a forecast with a signal and a predictability indicator. The signal is the number at the center of the box. The predictability is the figure at the bottom of the box. At the top, a particular asset is identified. This format is standardized across all forecasts. The middle number indicates strength and direction, not a price target or percentage gain/loss. The bottom figure, the predictability, signifies a confidence level.

Barrick Gold Stock Forecast

As you can see from the forecast above, the green 10.29 and 19.87 3 months and 1-year forecasts from I Know First indicates that the stock has upside potential.

I know First predicted the bullish movement in its “Dividend Stocks” package, as one of I Know First’s quantitative investment solutions.

Barrick Gold Stock Forecast

ABX was the top performing stock of the Dividend package, bringing returns of 58.99% in a 1-month period.