Analyzing Key Valuation Catalysts for Goldcorp
The EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple is a good valuation metric for capital-intensive industries. It compares companies with various capital structures.
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The above chart compares gold miners’ EV-to-forward-EBITDA multiples with their 2017 EBITDA margins. EV refers to the total market value of a company’s debt, equity, preferred shares, minority interests, net cash and equivalents, and investments in associates.
Is Goldcorp’s premium justified?
Among senior gold miners (GDX) (GDXJ), Goldcorp (GG) is trading at the highest EV-to-forward-EBITDA multiple, at 10.0x. That represents a premium of 21.0% to the peer average. It has consistently traded at a higher multiple than peers.
Goldcorp’s premium waned in 2016 when it guided for lower production for the next few years. Following the arrival of its new CEO, the company’s expectations were reset, coming in lower than what the market was expecting.
The good news, however, is that the company may have reached its lowest point in its operational performance, which means that it could see better days ahead. If Goldcorp follows through on the guidance it’s provided, there could be a rerating of its stock. The execution of the new management’s goals could go a long way towards a valuation upside. Goldcorp still has one of the best long-term organic growth production profiles among peers.
The SPDR Gold Trust ETF (GLD) mirrors gold’s performance. Investors can invest in GLD to get a broad-based exposure to gold.