Kinross Gold Corporation (TSX:K)(NYSE:KGC), one of the world’s largest gold producers, announced first-quarter earnings results after the market closed on May 5, and its stock responded by falling over 4% in the trading session that followed. The company’s stock now sits more than 40% below its 52-week high, so let’s take a closer look at the results to determine if we should consider initiating long-term positions today.
Lower metal prices lead to a weak quarterly performance
Here’s a summary of Kinross’ first-quarter earnings results compared with its results in the same period a year ago. All figures are in U.S. dollars.
| Metric | Q1 2015 | Q1 2014 |
| Adjusted Earnings Per Share | $0.01 | $0.03 |
| Metal Sales | $781.4 million | $817.4 million |
Source: Kinross Gold Corporation
Kinross’ adjusted earnings per share decreased 66.7% and its metal sales decreased 4.4% compared with the first quarter of fiscal 2014. The company’s weak results can be attributed to the average realized price of gold decreasing 6.2% to $1,218 per ounce and its depreciation, depletion, and amortization expenses increasing 5% to $206.2 million, which more than offset the positive impact of its total gold sales that increased 2.1% to 641,752 ounces.
Here’s a quick breakdown of eight other notable statistics from the report compared with the year-ago period:
- Gold production decreased 5.4% to 636,128 ounces
- Attributable all-in sustaining cost per ounce of gold sold on a by-product basis decreased 3.4% to $957
- Gross profit decreased 26.9% to $120.6 million
- Operating profit decreased 47.8% to $42.5 million
- Adjusted operating cash flow decreased 11.3% to $214.8 million
- Adjusted operating cash flow decreased 9.5% to $0.19 per share
- Capital expenditures decreased 11.5% to $149.5 million
- Ended the quarter with $1.01 billion in cash and cash equivalents, an increase of 2.7% from the beginning of the quarter
Should you buy shares of Kinross on the dip?
I think the post-earnings decline in Kinross’ stock was warranted, but I also think it has led to an attractive long-term buying opportunity. I think this because the stock trades at favourable forward valuations, including just 19.1 times fiscal 2016’s estimated earnings per share of $0.15, which is very inexpensive compared with its five-year average price-to-earnings multiple of 24.6.
I think Kinross’ stock could consistently command a fair multiple of at least 24, which would place its shares upwards of $3.50 by the conclusion of fiscal 2016, representing upside of more than 21% from current levels.
With all of the information above in mind, I think Kinross Gold Corporation is the top stock trading under $3 today. Foolish investors should take a closer look and strongly consider initiating positions.
