On Tuesday, September 25, analysts at Morgan Stanley downgraded shares of Harmony Gold Mining Co. Ltd. (NYSE:HMY). The firm lowered its rating on the stock from an equal Weight to an Under Weight and did not set a price target. As a result of the downgrade, shares of HMY reacted quite dismally, closing down at the end of trading by as much as 6.43% on Tuesday. That said, I wanted to examine the company a bit further and take a look at how it compares to some of its industry-based competitors within the Gold (NYSEARCA:GLD) and Gold Mining (NYSEARCA:GDX) sectors, in terms of profit margin. The two companies I chose to compare Harmony Gold Mining Co. are: Barrick Gold (NYSE:ABX), and AngloGold Ashanti (NYSE:AU).
As a whole, and in my opinion, the Gold and Gold Mining sectors possess some of the higher profit margins I've seen from a sector by sector standpoint. That said I wanted to demonstrate the fact that although Harmony Gold Mining has a respectable profit margin over the last 12 months, it certainly has a ways to go when compared to both Barrick Gold and AngloGold Ashanti.
In the last 12 months Harmony Gold Mining has demonstrated a profit margin of 17.04%, which was outpaced by both Barrick Gold (which demonstrated a profit margin of 27.88%) and AngloGold Ashanti (which demonstrated profit margin of 24.58%). Unless HMY can see a substantial increase in gold production over the next 12-24 months, I highly doubt investors and potential investors will see the company's profit margin exceed the 20% plateau as is the case with both Barrick Gold and AngloGold Ashanti.
It should be noted that all three companies could benefit from the latest round of quantitative easing, as Central Banks are intending increase their respected Gold Reserves by as much as 7.9% over the next 6-12 months. Could the latest round of Quantitative Easing enhance the profit margins of company's such as Harmony, Barrick and AngloGold? Sure it could, but in all honesty it's going to be a game of "Hurry Up and Wait" until these Central Banks find a suitable seller with an attractive price.
Should potential investors consider the chance to establish a position in Harmony Gold Mining, especially in the wake of the Morgan Stanley downgrade? From a comparative standpoint with regard to the company's profit margins relative to some of the biggest names in the Gold and Gold Mining sectors, I think the numbers speak for themselves and demonstrate the fact that HMY has a way to go before it finds itself at or near the profit margin levels of such competitors as Barrick Gold and AngloGold Ashanti. Potential investors looking to establish a position in Harmony should consider a moderate to midsized position in both Barrick Gold and AngloGold before making any long-term decisions with regard to HMY.
Disclosure: I am long GLD, AU, ABX. 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.