Key Takeaways
- With gold prices hitting recent record highs, NEM stock looks like a good buy among gold mining industry players.
- NEM's stock price is currently trading 23% lower than its 52-week high.
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Newmont Corporation’s NEM stock looks attractive from a valuation perspective. NEM is currently trading at a forward price/earnings of 11.89X, a roughly 10.2% discount when stacked up with the Zacks Mining – Gold industry’s average of 13.24X. It also has a Value Score of B.
Image Source: Zacks Investment Research
NEM is currently trading at a roughly 23% discount to its 52-week high of $58.72, reached on Oct. 22, 2024, as gold prices catapulted to new highs on U.S. election uncertainties and heightened geopolitical tensions.
Technical indicators show that NEM has been unremittingly trading above the 200-day simple moving average (SMA) since April 23, 2024. However, the stock is currently trading below the 50-day SMA. Nevertheless, the 50-day SMA continues to read higher than the 200-day moving average since the golden crossover on May 13, 2024, indicating a bullish trend.
NEM Stock Trades Below 50-Day SMA
Image Source: Zacks Investment Research
Newmont’s cheap valuation should lure investors seeking value. But is the time right to buy NEM’s shares based on its attractive valuation? Let’s delve deeper.
NEM Well Poised on Project Execution & Newcrest Buyout
Newmont continues to invest in growth projects in a calculated manner. The company is pursuing several projects, including Tanami Expansion 2 in Australia, the Ahafo North expansion in Ghana and Cadia Panel Caves in Australia. These projects should expand production capacity and extend mine life, driving revenues and profits.
The acquisition of Newcrest Mining Limited has also created an industry-leading portfolio with a multi-decade gold and copper production profile in the most favorable mining jurisdictions globally. The combination of Newmont and Newcrest is expected to deliver significant value for shareholders and generate meaningful synergies. NEM has achieved $500 million in annual run-rate synergies following the Newcrest buyout.
Newmont also remains committed to divesting non-core businesses as it shifts its strategic focus to Tier 1 assets. The recent agreement to sell its Akyem operation in Ghana to Zijin Mining Group Co., Ltd. for up to $1 billion in cash is part of this move. In September 2024, NEM agreed to sell its Telfer operation, its 70% stake in the Havieron gold-copper project and other related assets in Australia’s Paterson region to Greatland Gold plc for up to $475 million in gross proceeds. The proceeds from these divestments will support NEM’s capital allocation priorities, which include improving the balance sheet and returning capital to shareholders. NEM remains committed to Ghana, investing $950 million to $1,050 million in development capital for the Ahafo North gold mining project in Ghana's Ahafo Region. NEM’s attributable gold production jumped around 29% year over year in the third quarter on strong performance from its managed Tier 1 portfolio.
Robust Financial Health Supports NEM’s Capital Allocation
Newmont has a strong liquidity position and generates substantial cash flows, which allows it to fund its growth projects, meet short-term debt obligations and drive shareholder value. At the end of the third quarter of 2024, Newmont had liquidity of $7.1 billion, including cash and cash equivalents of around $3 billion. Its operating cash flow soared around 64% year over year to around $1.6 billion. NEM also generated $760 million in free cash flow and returned $786 million to its shareholders through dividends and share buybacks in the quarter.
NEM offers a dividend yield of 2.2% at the current stock price. Its payout ratio is 39% (a ratio below 60% is a good indicator that the dividend will be sustainable), with a five-year annualized dividend growth rate of 6.8%. Backed by strong cash flows and sound financial health, the company's dividend is perceived to be safe and reliable.
Gold Price Rally to Drive NEM’s Profitability
As a leading gold producer, Newmont stands to benefit significantly from the record-setting upswing in gold prices, which should boost its profitability and drive cash flow generation. Gold prices are hitting record highs this year, and the yellow metal has been among the best-performing assets. Gold has rallied roughly 31% this year, driven by strong demand from central banks, a dovish Fed interest rate outlook, global uncertainties and a surge in safe-haven demand thanks to increased tensions in the Middle East. After the recent pullback due to a rally in the U.S. dollar following Trump's win in the U.S. presidential election, gold prices regained strength and rose yesterday after the Federal Reserve cut interest rates by a quarter point. The prices of the yellow metal are currently hovering near the $2,700 an ounce level.
Newmont’s Earnings Estimates Moving Higher
Earnings estimates for NEM have been rising over the past 60 days, reflecting analysts’ optimism. The Zacks Consensus Estimate for 2024 and 2025 have been revised upward over the same time frame.
The Zacks Consensus Estimate for 2024 earnings is currently pegged at $3.15, reflecting an expected year-over-year growth of 95.7%. Earnings are expected to register a roughly 23% growth in 2025. NEM has a long-term EPS growth rate of 38.7% versus 23.4% for its industry.
Find the latest earnings estimates and surprises on Zacks Earnings Calendar.
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Newmont Stock Underperforms Industry and S&P 500
Newmont's price performance has been lackluster this year despite the rally in gold prices. NEM’s shares have gained 9.1% year to date, underperforming the industry’s 26.9% increase and the S&P 500’s rise of 24.7%. Its gold mining peers, Barrick Gold Corporation GOLD, Agnico Eagle Mines Limited AEM and Kinross Gold Corporation KGC, have gained 2.1%, 55.9% and 76.5%, respectively, over the same period.
NEM’s YTD Price Performance
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Final Thoughts: Buy NEM Shares
NEM presents an attractive investment case backed by a robust portfolio of growth projects, strong performance of its Tier 1 assets and solid financial health. Other positives include a healthy growth trajectory, rising earnings estimates and an attractive dividend yield. Rallying gold prices should also boost NEM’s profitability and drive cash flow generation. With a positive earnings outlook, Newmont looks poised to deliver attractive returns to investors, making this Zacks Rank #2 (Buy) stock a prudent choice to bet on for those looking to capitalize on the favorablegold marketconditions.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
