Gold mining stocks day two: Barrick (ABX)

Share price: $50.33

Shares: 999.80 million

Market capitalization: $50.32 billion

Bonds: Barrick has some big bonds coming due in 2013 although this miner is not overly indebted.

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DIVIDEND RECORD – Barrick has only started paying a quarterly dividend since the second half of 2010.  It just increased its quarterly dividend from $0.12 to $0.15 per share in its most recent quarter.

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Dividend: $0.15 per share quarterly ($0.60 annually)

Dividend yield: 1.2% ($0.60/$50.33 share price)

Dividend payout ratio: 12% – 50% depending on how you calculate ($0.60/$4.86 expected 2011 EPS = 12%) or ($0.60/$1.21 average adj. earnings = 50%)

EARNING POWER – Six year average adjusted earnings = $1.21 @ 999.8 million shares

(Earnings adjusted for changes in capitalization)

                        EPS       Net inc.             Shares               Adj EPS

2006                 $1.77    $1,506 M           851 M                $1.51

2007                 $1.28    $1,119 M           874 M                $1.12

2008                 $0.89    $785 M              903 M                $0.79

2009                 ($4.73) ($4,274 M)        903 M                ($4.27)

2010                 $3.28    $3,274 M           987 M                $3.27

—————————————————————————-

2011 Q1            $1.00    $1,001 M           999 M                $1.00

2011 Q2            $1.16    $1,159 M           1,001 M             $1.16

2011 Q3            $1.36    $1,365 M           1,001 M             $1.36

2011 Q4            $1.34 E $1,339 M E        999.8 M             $1.34 E

Six year average adjusted earnings = $1.21 @ 999.8 million shares

Source: 2011 Q4 consensus estimate $1.34 per share according to Reuters.com

Consider contrarian buying at $9.68 (8 times avg. adjusted EPS)

Consider value buying at $14.52 (12 times avg. adjusted EPS)

Consider speculative selling at $24.20 (20 times avg. adjusted EPS)

Barrick is trading at 41.6 times avg. adjusted EPS.  This is highly speculative pricing.

BALANCE SHEET – Barrick has a decent balance sheet, but I don’t like their rising debt.

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Book value per share: $22.38

Price to book value ratio: 2.24 (not so good; $50.33 share price/ $22.38 BV per share)

Current ratio: 2.27 latest quarter (over 2.0 is good)

Quick ratio: 1.18 latest quarter (over 1.0 is good)

CONCLUSION – Barrick bottomed in the $19.80 dollar range in October 2008 several months before the US stock market bottom in March of 2009.  That represented the best value entry into Barrick since late 2008.  The gold price will go down at least half of the percentage of the stock market’s decline.  This happened in 2008-2009.  US stocks dropped about 50% and gold dropped about 25%.  However, Barrick dropped even more than the broader market or gold.  It dropped almost 63% from $53.31 in March of 2008 down to $19.89 by October 2008.  Don’t think that it happen again.  Wait for another bottom near value territory at $14.52 per share.  Barrick would be yielding about 4.1% if it keeps its new dividend rate at such a low price.  The good news is that gold will continue to go up in price as the world’s sovereign debt crisis worsens, but you have to buy extremely low to preserve your capital when purchasing mining stocks.

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DISCLOSURE – I don’t own Barrick Gold (ABX).

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Published in: on December 6, 2011 at 1:45 pm  Leave a Comment  

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