Can Randgold Acquisition Help Analyst Sentiment for Barrick Gold?

Analyst sentiment for ABX

According to the consensus compiled by Thomson Reuters, 22 analysts are currently covering Barrick Gold (ABX). Only 14% of them have recommended a “buy” for the stock, which is just higher than the “buy” recommendations for New Gold (NGD) among major gold miner stocks (GDX).

About 77% of analysts have recommended a “hold” for Barrick Gold, and 9% have recommended a “sell.” Its target price of $14.10 implies an upside of 28% based on its current market price.

Can Randgold Acquisition Help Analyst Sentiment for Barrick Gold?

Declining production profile

Barrick Gold’s “buy” recommendations have fallen consistently over the last year. A year ago, 48% of analysts were recommending a “buy” for the stock.

While analysts are praising Barrick Gold’s significant deleveraging, the issues at its mines persist. Barrick’s production profile is expected to decline for the next few years. Its new production is expected to come online after 2021, but until then, its production growth is expected to fall. So even after the stock corrects in 2018, analysts probably won’t be impressed by its flat to declining earnings growth going forward.

Some of Barrick’s close peers (GDX) (GDXJ), on the other hand, have rising or stable production profiles. Newmont Mining (NEM), Agnico Eagle Mines (AEM), and Goldcorp (GG) boast strong production pipelines, which are not only expected to replace their maturing productions but also to contribute incremental volumes to their productions.

Acquisition of Randgold Resources

On September 24, Barrick Gold agreed to acquire Randgold Resources (GOLD) in a share-for-share deal. The merger would create an industry-leading gold company (GDX) with the greatest concentration of tier one gold (GLD) assets. The acquisition should provide the much-needed catalyst for ABX stock.

After the deal was announced, Barrick received two upgrades from Citi and TD Securities, which believe the merger could provide credibility to Barrick’s turnaround.