The EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple is an important relative valuation multiple. It’s generally used for capital-intensive industries such as gold mining.
With the help of relative valuation, we can calculate a company’s valuation with respect to its closest peers’ valuations. In this part of the series, we’ll compare Goldcorp’s (GG) forward EV-to-EBITDA valuation multiple with historical averages and the multiples of its major peers.
Higher multiple than peers
As you can see from the above graph, Goldcorp has consistently traded at a higher multiple than its peers. Currently, Goldcorp has a forward EV-to-EBITDA multiple of 12.2x, which is higher than its five-year historical average of 10.0x. It’s also trading at a higher multiple than its peers.
The premium to average peer multiple is currently 58%. Barrick Gold (ABX), Newmont Mining (NEM), and Agnico Eagle Mines (AEM) are trading at multiples of 7.8x, 7.5x, and 8.0x, respectively. Kinross Gold (KGC) and Yamana Gold (AUY) have lower multiples of 5.7x and 5.0x, respectively.
Goldcorp’s high EV-to-EBITDA multiple is probably due to its lower leverage and quality assets in safe jurisdictions.
Goldcorp’s future prospects
Goldcorp still has one of the best long-term organic growth production profiles with a good execution track record from management. Its premium valuation most likely is already factoring in all these positives along with its lower leverage.
The upside to Goldcorp stock going forward depends on catalysts such as a near-term upside in its production profile. Higher gold prices will definitely be another positive catalyst for the stock. With its huge pipeline of organic projects, development risk could lead to a further downside for the stock price.
The SPDR Gold Trust (GLD) mirrors the performance of gold prices. Investors can invest in GLD to get exposure to gold.