Is Barrick Gold Too Expensive At $24?

by Trefis Team
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Barrick Gold’s stock (NYSE: GOLD) has rallied 42% since late March (vs. about 36% for the S&P 500) to its current level of $24. This was after falling to a low of $17 in late March, as a rapid increase in the number of Covid-19 cases outside China spooked investors, and resulted in heightened fears of an imminent global economic downturn. The stock is currently about 14% above the $21 level it reached in mid-February. Are the gains warranted or are investors getting ahead of themselves? We largely think that the gains are justified, and believe the stock price is likely to hover around the current level, as fears surrounding the pandemic are put to rest and the economy begins to recover. Our conclusion is based on our detailed comparison of Barrick Gold’s stock performance during the current crisis with that during the 2008 recession in an interactive dashboard analysis.

How Did Barrick Gold’s Stock Fare During 2008 Downturn?

We see Barrick Gold’s stock declined from levels of around $41 in October 2007 (the pre-crisis peak) to roughly $28 in March 2009 (as the markets bottomed out) – implying that the stock lost as much as 32% of its value from its approximate pre-crisis peak. This marked a drop that was lower than the broader S&P, which fell by about 51%.

However, Barrick Gold’s stock recovered strongly post the 2008 crisis to about $40 in early 2010 – rising by over 44% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.

In comparison, GOLD’s stock lost 19% of its value between 19th February and 23rd March 2020, and has already recovered 42% since then. The S&P in comparison fell by about 34% and rebounded by about 36%.

Is The Recovery Warranted & Can We Expect Further Gains?

The rally across industries over recent weeks can primarily be attributed to the Fed stimulus which largely quieted investor concerns about the near-term survival of companies. The flattening of Covid cases in the worst hit U.S. and European cities is also giving investors confidence that developed markets have put the worst of the pandemic behind them. The current crisis, in fact, provided a boost to Barrick Gold’s business. Global gold prices have increased from about $1,500/ounce at the beginning of 2020 to almost $1,700/ounce currently due to higher demand. With rising investment in the yellow metal by major central banks and expectations of interest rates heading south, gold prices already saw a sharp rise in 2019. This trend was further boosted by the current Covid-19 crisis. This was reflected in the company’s Q1 2020 results which saw Barrick Gold’s revenues rise by 30%.

Over the coming weeks, we expect subdued growth in the number of new COVID-19 cases in the U.S. to buoy market expectations. Investors will likely focus their attention on Q2 and Q3 2020. With the easing of lockdowns the global supply bottlenecks will lessen and are likely to lead to higher shipments. A subdued economic growth outlook is expected to keep gold prices elevated. These trends and expectations of strong performance in 2020 could help Barrick Gold’s stock to remain around its current level. As per Barrick Gold’s Valuation, Trefis has a price estimate of $25 per share for GOLD’s stock, very close to its current market price.

For further insight in to the gold mining space, check out how Barrick’s close rivals Newmont and Freeport-McMoRan compare with each other.

Our dashboard forecasting U.S. Covid-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus. Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. The complete set of coronavirus impact and timing analyses is available here.

 

See all Trefis Price Estimates and Download Trefis Data here

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