Mining Stocks

Goldcorp Inc. Analysis – Initial Coverage $GG

220px-Goldcorp_logo.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – July 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Goldcorp Inc. (GG) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Goldcorp Inc. (Goldcorp) is a gold producer engaged in the acquisition, exploration, development and operation of gold properties in Canada, the United States, Mexico and Central and South America. The Company’s principal products are gold and the byproduct silver, copper, lead and zinc. Goldcorp’s operating assets include four mines in Canada and the United States, three mines in Mexico, and three in Central and South America. Goldcorp’s operating assets include four mines in Canada and the United States, three mines in Mexico, and three in Central and South America.

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Defensive Investor – must pass at least 6 of the following 7 tests: Score = 2/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 2/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – FAIL
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – FAIL

Valuation Summary

Key Data:

Recent Price $12.74
MG Value $0.00
MG Opinion Overvalued
Net Current Asset Value (NCAV) -$10.96
Current Ratio 1.70
PB Ratio 0.61

Balance Sheet – March 2015

Current Assets $2,015,000,000
Current Liabilities $1,184,000,000
Total Debt $3,670,000,000
Total Assets $28,012,000,000
Intangible Assets $479,000,000
Total Liabilities $10,969,000,000
Outstanding Shares 816,900,000

Earnings Per Share

2015 (estimate) $0.16
2014 -$2.66
2013 -$3.34
2012 $1.95
2011 $2.18
2010 $2.71
2009 $0.33
2008 $2.06
2007 $0.65
2006 $0.93
2005 $0.83

Earnings Per Share – ModernGraham

2015 (estimate) -$0.92
2014 -$0.92
2013 $0.23
2012 $1.95
2011 $1.83
2010 $1.55

Dividend History

Free Cash Flow

Conclusion:

Goldcorp Inc. does not qualify for either the Defensive Investor and the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the poor PEmg and PB ratios.  The Enterprising Investor is concerned with the level of debt relative to the current assets, and insufficient earnings stability or growth over the last five years.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities or proceed with a speculative attitude.  As for a valuation, the company appears to be overvalued due to the current negative EPSmg, which leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value falling below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Goldcorp Inc. (GG)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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