In the past month, seven analysts have boosted their earnings forecasts for our first idea. And our second recommendation is to bank some profits.
Barrick Gold Corp. (ABX)
From Jack Adamo’s Insiders Plus
The newest addition to our gold producers, Barrick Gold Corp. (ABX) had cosmetic problems similar to Goldcorp’s. Revenues were down 10.2% as the company continued selling off non-core assets to pay down debt. However, the lower revenues were more than offset by lower expenses across the board, except for a non-significant increase in currency translation losses.
So then, why was pre-tax income down 74%?
Last year featured a reversal of impairment charges on assets whose value was written-down when gold prices plummeted from 2012 to 2015. You may recall that when we saw such write-downs among our miners, I explained that U.S. GAAP accounting allowed companies to show the recovery of that value in the income statement should such a recovery occur. (International Financial Reporting Standards only allow the company to write-up the value of the asset on the balance sheet.)
I consider the U.S. GAAP method reasonable. If you’re going to show the write-down in value in the company’s earnings, then a recovery in value should be shown there as well. So, in cases like these, it wouldn’t make sense to criticize a later drop in quarterly earnings because they don’t have one of these large asset revaluation write-ups.
In the final analysis, EPS fell to 14¢ per share from 58¢, but operating cash flow was slightly higher this year than last.
As Barrick continues to reduce its interest expense by paying down debt and selling off non-core assets, its earnings should increase and its market valuation rise. The shares were up 4.6% this week, despite lower gold prices; so, obviously Mr. Market agrees. Barrick Gold Corp. is a Speculative Buy up to $13.75.
Jack Adamo, Jack Adamo’s Insiders Plus, www.jackadamo.com, April 28, 2018