Yamana Gold Doesn't Surprise Anymore

| About: Yamana Gold (AUY)

Summary

Yamana Gold Inc. (USA) (NYSE:AUY) will release its Fourth Quarter Financial Results Friday, February 19th, 2016 at 9:00am ET.

Q4, 2014 earnings announcement had no impact on the value of NYSE:AUY because based on prior financial news AUY was already getting a “sell” rating by analysts.

According to my analysis AUY is not a buy today.

Yamana Gold Inc. (NYSE:USA) (NYSE:AUY) will release its Fourth Quarter Financial Results Friday, February 19th, 2016 at 9:00am ET.

"In its latest quarter ended on 30th September 2015, Yamana Gold Inc. reported earnings of -$0.02. The posted earnings met the analyst's consensus. In the matter of earnings surprises, the term "Cockroach Effect" is often implied. Cockroach Effect is a market theory that suggests that when a company reveals bad news to the public, there may be many more related negative events that have yet to be revealed. In the case of earnings surprises, if a company is suggesting a negative earnings surprise it means there are more to come." (HERE).

I want to analyse and measure the impact of Q4, 2014 earnings announcement on the value of NYSE:AUY.

Event of interest (Yamana Gold Inc. February 11, 2015 6:10 PM ). Yamana Gold Announces Fourth Quarter and Year End 2014 Results, and 2015-2017 Outlook:

"TORONTO, ONTARIO--(Marketwired - Feb 11, 2015) - YAMANA GOLD INC. (YRI.TO)(AUY) ("Yamana" or "the Company") today announced its financial and operating results for the fourth quarter and year end 2014, and updates the Company's future outlook."

[…]

Adjusted loss from continuing operations(2) for the fourth quarter of $16.2 million ($0.02 per share);

[…]". (here).

Event window (from January 13, 2015 to March 12, 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 -166.70% surprise.

I use the 250-trading-day period prior to the event window as the estimation window (from January 15, 2014 to January 12, 2015) for this announcement ('Bad News'). So I will estimate the market-model parameters (intercept and slope of the function Rauy= f(Rmkt), where Mkt = S&P 500, over the 250 days prior to the event period.

Since the R-square is zero or thereabout, the market model used as the normal return model doesn't fit the set of observations. So I added an additional factor to the model, being returns on gold prices (London bullion market), and then I used a two-factor model. Unfortunately this 2-factor model doesn't fit well the set of observations either.

Then I decide to use the changes in the NYSE Arca Gold BUGS Index as a second factor in the model (representative of the gold stock industry in the US stock market).

Here are the coefficients, t-stats and p- values:

Coefficients

Standard Error

t Stat

P-value

Intercept

-0,00219669

0,000890514

-2,46677

0,014313

Rsnp500

-0,10395151

0,121239523

-0,85741

0,392052

R ^HUI

1,137428182

0,034738338

32,74273

7,84E-92

Click to enlarge

Rauy* = - 0,00219669 -0.10395151xRsnp500 + 1.137428182xR^HUI, is the mathematical expression that roughly summarizes the normal return of NYSE:AUY.

The table represents the abnormal returns of NYSE:AUY as well as the cumulative abnormal returns for earnings announcement of February 11, 2015, categorized as 'Bad News' since AUY's actual EPS was minus 166.70% than expected:

Since NYSE closes at 4:00 p.m. ET I will check for impact of this bad news starting from 1 day after the event day. From February 12, 2015 because Yamana Gold Announced Fourth Quarter and Year End 2014 Results, and 2015-2017 Outlook on February 11, 2015 at 6:10 PM.

For this 'Bad News' there is no evidence against the null-hypothesis, H0, that the event has no impact on the value of GG in terms of negative abnormal returns over the subsequent trading period. This is odd since the bad news produces a substantial negative surprise.

Based on prior financial news AUY was already getting a "sell" rating by analysts.

For example:

"We rate YAMANA GOLD INC a SELL. This is driven by multiple weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, disappointing return on equity and generally disappointing historical performance in the stock itself."(here).

Yamana Gold Inc. is a Canada-based gold producer. The Company is engaged in gold mining and related activities, including exploration, extraction, processing and reclamation. The Company's production mines include Chapada, Brazil; El Penon, Chile; Canadian Malartic, Canada; Mercedes, Mexico; Gualcamayo, Argentina; Jacobina, Brazil; Minera Florida, Chile, and Other Producing Mines. Its development properties include Cerro Moro, Agua Rica and Suyai in Argentina. The Company has a total gold proven and probable mineral resource of around 18.750 million tons at Alumbrera, 126.95 million tons at Canadian Malartic, 509.15 million tons at Chapada, 1.96 million tons at Cerro Morro, 10.41 million tons at El Penon, 29.16 million tons at Gualcamayo, 22.85 million tons at Jacobina, 8.68 million tons at Jeronimo, 4.01 million tons at Mercedes, 7.89 million tons at Minera Florida, 24.03 million tons at C1-Santa Luz, 2.05 million tons at Fazenda Brasileiro and 10.58 million tons at Pilar.

Price:

Yamana Gold Inc. closed at $1.61 with 10,664,176 traded on January 28, 2016. The share price ranged between a low of $1.59 and a high of $1.68.

The company has a market cap of $1,57M (as of January 29, 2016, 15:41 time in Rome) and the number of outstanding shares is 947.04M. The 52-week high of Yamana Gold Inc. is $4.54 and the 52-week low is $1.38.

Analysts opinion:

From a total of 17 analysts covering Yamana Gold, Inc. (NYSE:AUY) stock, 2 rate it a "Strong Buy", 6 a "Buy", 1 a "Sell", and 8 a "Hold".

On a scale of 1 to 5 where 1 is a Strong Buy and 5 is a Strong Sell, the stock is ranked 2.8 based on 15 sell-side broker recommendations.

Of the 15 analysts estimates, the most bullish sees the stock reaching $4.96 within the next 12 months while the most bearish analyst sees the stock at $1.59 within the year.

"Likely analysts rely on price‐multiple heuristics rather than formal valuation models to compute target prices.

According to my analysis AUY is not a buy today since the stock looks overvalued by the market."(HERE).

My analysis is based on the use of a discounted dividend model: In this article, I explain why I use the DDM, since somebody might think it doesn't hold up all too well.

Over the last year, AUY fell by 60.04%, GDX fell by 35.79%, GLD fell 11.77% and ^HUI fell 39.63%.

Barrick Gold Corporation, Goldcorp, Kinross Gold Corporation, and AngloGold Ashanti fell by 21.39%, 52.57%, 51.82%, and 27.96%, respectively, during the same period.

As of January 28, 2016:

Click to enlarge

Gold price (in the London Bullion Market) fell by 12.51% during the same period:

Over the last month (from Dec. 29, 2015 to Jan. 28, 2016), AUY fell 14.81%, the Market Vectors Gold Miners ETF rose 4.17% and the SPDR Gold Trust ETF rose 0.51%.

Barrick Gold Corporation rose 28.28%, Goldcorp fell by 6.01%, Kinross Gold Corporation fell by 13.10%, and AngloGold Ashanti rose 16.37%, during the same period.

Gold price (in the London Bullion Market) rose 4.85% during the same period, from $1,067.250 (December 29, 2015) per troy ounce to $1,119.000 per troy ounce (January 28, 2016).

Conclusion

Q4, 2014 earnings announcement had no impact on the value of NYSE:AUY because based on prior financial news AUY was already getting a "sell" rating by analysts.

On a scale of 1 to 5 where 1 is a Strong Buy and 5 is a Strong Sell, the stock is ranked 2.8 based on 15 sell-side broker recommendations.

But according to my previous article analysis AUY is not a buy today since the stock looks to me being still overvalued by the market.(HERE).

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.