Shares of Newmont Corp. were little changed Tuesday, despite selloffs in gold futures and the broader stock market, after UBS analyst Cleve Rueckert said it was time to buy, given “compelling” valuation and a “very attractive” dividend yield.
Rueckert raised his rating to buy, after being at neutral since February 2005. He also cut his stock price target by 36%, to $50 from $78, but the new target still implies about 20% upside from current levels.
After Newmont’s stock underperformed gold futures by a wide margin this year, Rueckert said it was trading at about a discount of 8% to net asset value (NAV) through Friday, while history suggests gold miners typically trade at a premium of 30% to 50%. And the price relative to estimated gold prices is also trading at the deepest discount in more than three years.
The gold miner’s stock NEM CA:NGT was virtually unchanged in afternoon trading Tuesday, while continuous gold futures GC00 fell 0.6% and the S&P 500 index SPX lost 0.6%.
The stock, which closed last Thursday at the lowest price since March 2020, has tumbled 32.8% year to date, while gold futures have slipped 6.3% and the S&P 500 has lost 18.1%.
“We calculate NEM is pricing in gold at $1,650/oz, a 3% discount to spot and the largest discount since April 2019,” Rueckert wrote in a note to clients.
In addition, Rueckert said after recent conversations with Newmont’s management, he is “confident” the company can maintain its current dividend, with visibility to 2025, while he estimates the stock is currently pricing in a potential 25% dividend cut. He said that is “too bearish,” in his view.
With a current annual dividend payment rate of $2.20 a share, the dividend yield is 5.28% at current stock prices, which is more than triple the implied yield for the S&P 500 of 1.69%.
“NEM’s $4.3 billion cash balance continues to grow in our forecasts, currently supporting 2.5 years of dividends, and leaving the door open for additional futures [share] buybacks,” Rueckert wrote.
Source: finance.yahoo.com