Goldcorp: Implications From An Event Study On The Q3, 2015 Earnings Announcement

| About: Goldcorp Inc. (GG)

Summary

With an event study I measure the impact of bad news on the share price. (Event of interest: GG's earnings announcement on October 29, 2015.).

The stock lost 5.79% in 1 year and the S&P 500 lost 55.89% (as of January 27, 2016. 17:56 pm, time in Rome).

Historical estimated revenues, estimated and actual EPS are presented as well as key performance measure of the gold mining stock over the last five quarters.

Goldcorp Inc has a long history of dividend paid to its shareholders (15 years). But the dividend dropped from $0.05 (July 2015) to $0.02 (August 2015).

VANCOUVER, Jan. 11, 2016 /CNW/ - GOLDCORP INC. (TSX: G, NYSE: GG) will release 2015 fourth quarter and full-year results after the market close on Thursday, February 25, 2016. The release will also include the Company's guidance for 2016 and its mineral reserve and mineral resource statement as of December 31, 2015.(here).

Goldcorp Inc. (Goldcorp) is a gold producer engaged in the acquisition, exploration, development and operation of gold properties in Canada, the United States, Mexico and Central and South America. The Company's principal products are gold and the byproduct silver, copper, lead and zinc. Goldcorp's operating assets include four mines in Canada, two mines in Mexico, and four in Central and South America.

LAST QUARTER: Goldcorp Inc. (NYSE:USA) (NYSE:GG) reported Q3 EPS of -$0.4, missing the consensus estimate of $0.05. Revenue came in at $1.3B, which was above the consensus $1.1B projection. Looking back further, it reported an increase in revenues to $1.3B in Q2 from $1.27B in Q1. The consensus estimate was of $1.07B and $953.52M, respectively.(here).

The company's earnings per share for the third quarter of this year are down -130.8% compared to the same quarter last year. From $ 0.13 per share (Q3, 2014) to $-0.04 per share (Q3, 2015).

See picture 1 and picture 2.

Picture 1.

Picture 2.

According the data from Yahoo Finance (Earnings History), reported Q3 EPS of -$0.04, missing the consensus estimate of $0.04. A difference of $-0.08 with a surprise of -200.00% (see picture 1).

Goldcorp reports a 1st quarter loss of $192 million. We will examine the impact of the earnings announcement on the value of GG. The Vancouver, British Columbia-based company had a loss of 23 cents per share (Diluted Normalized EPS).

Event of interest: GG's earnings announcement on October 29, 2015.

Event window (from October 1, 2015 to November 27, 2015): 20 days prior to the event day plus the event day plus 20 days post the event day.

This was 'Bad News' since EPS actual was more than 2.5% less than expected. It was -200% than expected.

I use the 250-trading-day period prior to the event window as the estimation window (from October 17, 2014 to September 30, 2015) for this announcement ('Bad News'). So I will estimate the market model parameters (intercept and the slope of the function Rgg = f(Rmkt), where Mkt = S&P 500, over the 250 days prior to the event period.

Yesterday (January 26, 2016), Goldcorp Inc. closed at $10.73. The stock lost 5.79% in 1 year and the S&P 500 lost 55.89% (as of January 27, 2016. 17:56 pm, time in Rome).

Picture 3.

I run the regression tool in excel to estimate the betamkt which represent the exposure of NYSE:GG returns to the changes in the stock market price (S&P 500):

Betamkt = 0,514 (t- Stat: 2,408). P-value: 0,016755.

Multiple R and Rsq are low but the residuals seem to fall in a symmetrical pattern and have a constant spread throughout the range:

Picture 4.

Rmkt's beta is 0.514: Goldcorp's daily return is less volatile than daily S&P 500's return over the estimation window (from October 17, 2014 to September 30, 2015).

P-value and t- Stat value for Rmkt tell us that factor is statistically significant.

Rgg* = -0,00188 + 0,514 x Rmkt is the mathematical expression that roughly summarizes the normal return of GG.

Now that I have the parameters of the market model, I can calculate the expected return, E(r), the abnormal return, AR, the abnormal cumulative return, CAR, and the abnormal return t-test, AR t-test.

To calculate the expected return, E(r), we will substitute Rmkt with the daily returns on S&P 500 in the market model over the event window, 41 days, from October 1, 2015 to November 27, 2015.

To calculate the abnormal return (NYSE:AR), we need to subtract from the daily return on Goldcorp Inc. (which is the actual return) the expected return (E(r)) over the event window, which is composed by 41 days, from October 1, 2015 to November 27, 2015.

Then I calculate the cumulative abnormal return. The t-test is calculated instead as the abnormal return divided by the standard error. The standard error is 0,032261.

The table represents the abnormal returns of Goldcorp Inc. as well as the cumulative abnormal returns for earnings announcement of October 29, 2015, categorized as 'Bad News' since GG's actual EPS was minus 200% than expected:

Picture 5.

For this 'Bad News', the negative abnormal return of the event day is -0,101 (-10.1%), with a standard error of 0,032261 leading to an AR t-test value of - 3.129 (more than - 1.96). There is evidence against the null-hypothesis, H0, that the event has no impact on the value of GG.

Below graphic refers to the table shown above.

Picture 6.

As you can see, the green spike, which represents abnormal return, is negative and statistically significant on October 29, 2015: it is the highest (downward) over the whole event window investigated.

The event had impact on GG's value on the same day of the earnings announcement.

Here is the plot of Cumulative Market Model Abnormal Return for GG's earnings announcement on October 29, 2015.

Picture 7.

Analyst Estimates on Goldcorp Inc. earnings and revenues: For next quarter, Q4, 2015, analysts are looking for earnings per share of $0.02 on revenue of $1.07B.

Eps range between $-0.05 and $0.10 on revenues that range between $983.07M and $1.17B.

Picture 8.

The table below shows historical estimated EPS and actual EPS.

Picture 9.

The company has registered negative earnings surprises in five of the last four quarters.

The table shows production of gold, gold sold, cash cost per ounce, avg realized price and avg London gold price over the last 5 quarters.

Picture 10.

Here is a print screen of the outlook update of the company. You can check outlook's data against historical key performance measure (Picture 10) and historical analyst estimates (Picture 9).

Click to enlarge

"VANCOUVER, Jan. 4, 2016 /CNW/ - GOLDCORP INC. (TSX: G, NYSE: GG) is pleased to declare its first monthly dividend payment for 2016 of $0.02 per share. Shareholders of record at the close of business on Thursday, January 14, 2016 will be entitled to receive payment of this dividend on Friday, January 22, 2016."(here).

Goldcorp Inc has a long history of dividend paid to its shareholders. The dividend went from $0.05 (July 2015) to $0.02 (August 2015).

Picture 11.

Conclusion:

With an event study I measure the impact of a bad news (Event of interest: GG's earnings announcement on October 29, 2015) on the share price.

There is statistical evidence that the 'Bad News', which negative abnormal return of the event day is -0,101 (-10.1%), had an impact on the value of the gold stock.

You can check company outlook's data from Q3, 2015 report against hystorical key performance measure (Picture 10) and historical analyst estimates (Picture 9).

Goldcorp Inc has a long history of dividend paid to its shareholders (15 years). The dividend went from $0.05 (July 2015) to $0.02 (August 2015).

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.