What To Expect From Randgold Resources' Earnings Report

| About: Randgold Resources (GOLD)

Summary

The gold price has shown some recovery in the last two months; the last price of $1,143.90 per ounce is already 9.3% up from its seven-year low of $1,046.60.

Randgold Resources is scheduled to report its fourth-quarter 2015 financial results on Monday, February 08, before the market open.

Only two analysts are covering the stock, and they expect Randgold to post a profit of $0.48 a share, a 9.4% decline year over year.

However, according to my calculations, I expect earnings per share of about $0.42, 20.6% down from the same quarter a year ago.

In my view, GOLD's stock is well positioned to achieve high capital gain when the gold price recovers.

Randgold Resources (NASDAQ:GOLD), which is engaged in the exploration and development of gold deposits in Sub-Saharan Africa, is scheduled to report its fourth-quarter 2015 financial results on Monday, February 08, before the market open. Only two analysts are covering the stock, and they expect Randgold to post a profit of $0.48 a share, a 9.4% decline from its actual earnings for the same quarter a year ago. In the last two quarters, the company was able to beat estimates by a small margin, after missing expectations in its previous two quarters, as shown in the table below.

Data: Yahoo Finance

Since the beginning of the year, GOLD's stock is up 21.4% while the S&P 500 Index has decreased 6.4%, and the Nasdaq Composite Index has lost 10.0%. However, since the beginning of 2012, GOLD's stock has lost 26.3%. In this period, the S&P 500 Index has increased 52.1% and the Nasdaq Composite Index has risen 72.9%.

Randgold Daily Chart

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Randgold Weekly Chart

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Charts: TradeStation Group, Inc.

The price of gold has shown some recovery in the last two months; the last price of $1,143.90 per ounce is already 9.3% up from its seven-year low of $1,046.60 from December 03, 2015. Gold is benefiting from a rush to safe havens amid volatility on stock markets. Also, the Federal Reserve statement from last week that it would assess economic data before deciding whether to proceed with a planned second hike in March indicates that interest rates are to stay low for the foreseeable future, which is positive for gold.

Gold April 2016 Leading Contract

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Chart: TradeStation Group, Inc.

Trying to estimate fourth-quarter EPS, I have calculated the average daily gold price for the fourth-quarter 2014, and the third and the fourth quarters of 2015. I have also calculated the Brent crude oil average price and the dollar index average value of these quarters. The results are shown in the table below.

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According to my calculations, the average gold price fell 8.4% in the fourth quarter compared to the same quarter a year ago. The Brent crude oil dropped 44.1%, and the dollar index increased 11.7%. I also referred to oil price because fuel is the largest cost of production for gold mining companies. U.S. dollar value also matters since the strong U.S. dollar lowers local costs which are paid in local currency.

However, despite the significant drop in oil price in 2015 compared to 2014 and the rise in the dollar value, Randgold's total cash cost per ounce in the first nine months of 2015 at $697 per ounce were $4 higher than the total cash cost in the same period of 2014, as shown in the table below. Taking all these into account, I have calculated that the gold margin in the fourth quarter of 2015 should have been lower by about 20% than the gold margin in the last quarter of 2014. Hence, I expect earnings per share of about $0.42 in the fourth quarter of 2015, 20.6% down year over year (shares outstanding is about the same). My EPS estimate is a bit lower than that of the two analysts' average of $0.48.

* My estimate

Valuation

Although Randgold's trailing P/E is pretty high at about 33, it is worth noting that it has no debt at all, and its current ratio is very high at 3.10.

In addition, most Randgold's margins and return on capital parameters have been much better than its industry median, its sector median, and the S&P 500 median, as shown in the tables below.

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Source: Portfolio123

The company pays a dividend. The forward annual dividend yield is at 0.80%, and the payout ratio is only 26.4%.

Summary

The price of gold has shown some recovery in the last two months; the last price of $1,143.90 per ounce is already 9.3% up from its seven-year low of $1,046.60 from December 03, 2015. Gold is benefiting from a rush to safe havens amid volatility on stock markets. Randgold Resources is scheduled to report its fourth-quarter 2015 financial results on Monday, February 08, before the market open. Only two analysts are covering the stock, and they expect Randgold to post a profit of $0.48 a share, a 9.4% decline from its actual earnings for the same quarter a year ago. However, I have calculated that the gold margin in the fourth quarter of 2015 should have been lower by about 20% than the gold margin in the last quarter of 2014. Hence, I expect earnings per share of about $0.42 in the fourth quarter of 2015, a 20.6% down year over year. Although Randgold's trailing P/E is pretty high at about 33, it is worth noting that it has no debt at all, and its current ratio is very high at 3.10. In my view, GOLD's stock is well positioned to achieve high capital gain when the gold price recovers.

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.