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.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Joseph Solitro has no position in any stocks mentioned.