Newmont Stock: I Raise My Price Target as Gold Hits Record Highs (NYSE:NEM)

The soft landing of the US economy seems to have a bumpy impact on the US Dollar Index (DXY). A good macroeconomic growth environment together with a weaker dollar is a bullish recipe for spot gold. Heading into the final week In August, the precious metal was trading at an all-time high of over USD 2,525 per ounce. Lower real interest rates were certainly also a tailwind.

I reiterate my buy recommendation for Newmont Mining (NYSE: NEM). I’m raising my intrinsic value target to $65 from $50 last November based on higher gold prices and better EPS growth trends over the next two years. I’ll note key price points on the chart to keep an eye on as we near year-end.

Total stock returns have increased 40% since my analysis in 2023, driven by firmer gold prices and strong execution by NEM’s management team.

Gold rises to new highs in August, +32% year-on-year

Speculators recently increased their net long position in gold futures

In July, Newmont reported a solid quarterly result. Second quarter non-GAAP earnings per share of $0.72 comfortably beat the Wall Street consensus estimate of $0.61, while revenues of $4.4 billion, a massive 64% increase from the year-ago period, exceeded earnings by $260 million. The $60 billion market cap gold company in the natural resources sector reported second quarter production of 2.1 million gold equivalent ounces and generated an impressive free cash flow of $594 million. Trailing 12-month free cash flow per share is now $0.64.

From a shareholder perspective, Newmont has completed a $250 million share repurchase plan and repaid $250 million in debt, helping to strengthen its balance sheet. To improve liquidity, the company has announced The Company expects to generate cash proceeds of US$153 million from the monetization of Batu Hijau and expects gross disposals of US$2 billion from the disposal of non-core assets in the coming periods.

However, after the July earnings release, the stock traded 4.2% lower, but that decline was short-lived and the stock has recently hit new highs stretching back to April 2023. Ahead of the Q3 report in October, the options market is pricing in an earnings-related 5.3% move when analyzing the at-the-money straddle, expiring after the report at the earliest. Analysts are forecasting non-GAAP earnings per share of $0.76 on revenue of $4.59 billion.

With reported net income of $857 million and adjusted EBITDA of $2.0 billion for the quarter, profitability trends are healthy, with gold prices hitting new highs in the third quarter. Following the strong results and bullish price action in gold, the stock was updated at Scotiabank amid macroeconomic tailwinds and significant gold purchases by central banks that could sustain the bull market for the precious metal.

The main risks include falling gold prices, which could result from falling real interest rates, a stronger dollar, which could hurt dollar-denominated commodities, higher labor costs and interest rates, which could result in lower net income for Newmont, while geopolitical and adverse currency fluctuations pose other potential risks.

On the Earnings outlookNon-GAAP earnings per share are expected almost double this year to $2.97, while earnings per share growth is expected to be over 26% year-over-year. Growth should then stabilize at low to mid-single digits through 2026. Revenue growth is very strong this year and is expected to slow in the coming quarters. Dividends are still below their all-time highs of 2021 and 2022, but I would not be surprised to see dividends increased if free cash generation increases in the coming periods.

Newmont: Earnings, valuation and sales forecasts

To EvaluationIf we assume normalized operating earnings per share (EPS) of $3.40 for the next twelve months and apply a 19x P/E, which is below the 5-year average P/E as the earnings cycle is currently strong and could weaken by 2026, then shares should be around $65.

Aside from earnings, NEM has mixed valuation metrics, including a near-average price-to-sales ratio of 3.3. So in my view, this is not a definite buy, but it is still cheap.

NEM: Profitable, but otherwise mixed assessment

Newmont has a low valuation compared to its peers, but the P/E ratio is attractive given its earnings position. With a robust growth curve Profitability trends are not particularly strong – I would like to see improved free cash flow, but strong profit margins and the management team’s capital allocation strategies have helped improve the balance sheet.

As a result, the sellers have become more optimistic about Newmont. There was a high of 15 EPS upgrades in the last 90 days, compared to no downgrade. Finally, Share price dynamics has been excellent since the beginning of the second quarter, which earns the stock a quantity rating of A in this respect.

Competitive analysis

Looking ahead, corporate event data provided by Wall Street Horizon shows that the unconfirmed third-quarter 2024 earnings date is Thursday, October 24 (BMO).

Previously, shares were traded ex-dividend $0.25 on Thursday, September 5, before the Gold Forum Americas 2024 conference, where Newmont’s management team is expected to speak.

Risk calendar for corporate events

The technical view

NEM has hit its “low $50s” target that I outlined in November 2023. Notice in the chart below that shares have been on a robust uptrend since March of this year when they briefly dipped below $30. The past nine months have been impressive and NEM’s long-term 200-day moving average is now positively sloping and currently sits just below $40. I like the breakout that occurred in late April above a downtrend resistance line that happened to be a breakout gap and a golden cross when the 50-day moving average rose above the 200-day moving average.

Also, take a look at the RSI momentum oscillator at the top of the chart – it is moving in a bullish zone between the high 40s and low 70s, suggesting that the bears have been unable to push momentum to oversold levels, which is positive. The problem is that shares are now hitting potential resistance, with the next upside level to watch at $61. The good news is that there is now high volume relative to price below the current share price, suggesting there should be a buffer for a prolonged downside move.

Overall, technical trends are healthy, but we could see a short-term consolidation around this resistance point.

NEM: Bullish uptrend after April breakout, strong RSI but short-term resistance

The conclusion

I recommend Newmont as a buy. Given high gold prices and rising earnings expectations, NEM’s valuation remains reasonable and shares are in a technical uptrend.