Eldorado Gold Corp. (TSX:ELD)(NYSE:EGO), one of the world’s leading low-cost gold producers, announced better-than-expected second-quarter earnings results after the market closed on July 30, and its stock responded by soaring over 11% in the trading session that followed. Let’s take a closer look at the results to determine if a rally of this magnitude was warranted, and then decide if we should buy or avoid the stock today.
The results that enabled the rally
Here’s a summary of Eldorado’s second-quarter earnings results compared with what analysts had anticipated and its results in the same period a year ago. All figures are in U.S. dollars.
|Adjusted Earnings Per Share||$0.02||$0.01||$0.05|
|Revenue||$214.19 million||$213.45 million||$265.50 million|
Eldorado’s adjusted earnings per share decreased 60% and its revenue decreased 19.3% compared with the second quarter of fiscal 2014. These year-over-year declines can be attributed to three primary factors.
First, gold prices have fallen over the last year, which led to the company’s average realized gold price decreasing 7.5% to $1,201 per ounce. Second, its all-in sustaining cash cost per ounce of gold sold increased 8.6% to $900. Third, the company’s sales volume of gold decreased 10.8% to 170,056 ounces. All three of these factors led to Eldorado’s revenue from the sale of gold decreasing 17.5% to $204.2 million and its gross profit from gold mining operations decreasing 39.9% to $61.4 million.
Here’s a quick breakdown of five other notable statistics from the report compared with the year-ago period:
- Gold production decreased 9.7% to 181,160 ounces
- Cash operating costs per ounce of gold sold increased 16.4% to $569
- Total cash cost per ounce of gold sold increased 12.6% to $618
- Cash flow from operating activities before changes in non-cash working capital decreased 32.9% to $61.9 million
- Ended the quarter with $446.13 million in cash and cash equivalents, an increase of 0.1% from the beginning of the quarter
Eldorado also declared a dividend of CDN$0.01 per share that will be paid out on August 26 to shareholders of record at the close of business on August 17.
What should you do with Eldorado’s stock today?
It was solid quarter overall for Eldorado, so I think its stock reacted correctly by moving higher, but I think the rally of more than 11% was a bit overdone. However, I do think the stock represents an attractive long-term investment opportunity because it still trades at favourable forward valuations, including 30 times fiscal 2016’s estimated earnings per share of $0.15, which is inexpensive compared with its five-year average price-to-earnings multiple of 36.1.
I think Eldorado’s stock could consistently command a fair multiple of at least 35, which would place its shares around $5.25 by the conclusion of fiscal 2016, representing upside of more than 16% from today’s levels.
With all of the information provided above in mind, I think Eldorado Gold is one of the top turnaround plays in the gold industry today. Foolish investors should take a closer look and consider beginning to slowly scale in to long-term positions over the next couple of weeks.
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Fool contributor Joseph Solitro has no position in any stocks mentioned.