Will Yamana Gold Make It or Break It This Earnings Season?

Yamana Gold [stock_market_widget type="inline" template="generic" color="default" assets="YRI.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] has staged a strong comeback in recent months thanks to an improvement in the company’s production profile, bringing a lot of relief to investors as the stock was in bad shape in the earlier part of the year.

But Yamana will have to face a litmus test on Oct. 24 when it releases its fiscal third-quarter results. Let’s take a look at what’s expected of Yamana and if it will be able to deliver results that are strong enough to help it sustain its impressive run.

The Expectations from Yamana

Analysts expect Yamana Gold to deliver third-quarter revenue of $368 million. Yamana’s revenue in the prior-year period stood at nearly $417 million, so investors should prepare for a top-line slide. The weak revenue performance can be attributed to a potential drop in the company’s output, but the company could surprise since they seem all set to take advantage of higher gold prices.

In the third quarter of 2018, Yamana had witnessed an average realized price of $1,213 per ounce of gold, which was identical to the market price of the precious metal. Now, the price of gold in the third quarter of 2019 was at a much higher level than the year-ago period.

As reported by Investing News:

The yellow metal started the quarter trading at US$1,383.70 per ounce and trended higher for the majority of July. As of August 1, gold was moving at US$1.445.10 and spent the rest of the month picking up momentum. However, the September story was slightly different, as the precious metal started the 30-day cycle at US$1,528.50, then slipped to US$1,482.20 to end the three-month period.

So, don’t be surprised to see Yamana Gold witness an average realized gold price of more than $1,400 an ounce during the third quarter. In that case, the company can do much better than the prior-year period even if its production takes a hit.

However, analysts continue to remain pessimistic about Yamana’s prospects. They expect a 25% drop in the top line next quarter, forecasting that the company will end 2019 with an overall top-line erosion of 12.5%. The downtrend is expected to continue in 2020, with an estimated revenue drop of nearly 9%.

Does It Make Sense to Hold Yamana?

Yamana is trading at a forward P/E ratio of nearly 29. It doesn’t have a trailing P/E because it is not profitable just yet. But for that to happen, Yamana will have to deliver impressive bottom-line growth, which seems like a challenge as its revenue is anticipated to drop.

Analysts expect Yamana to nearly double its earnings to $0.15 per share in 2020. But that might not happen if gold prices start to tumble and Yamana’s production does not pick up the pace. This is why investors should be cautious going into the company’s next set of results and consider booking some profits because if things don’t go as expected, its stock price could head south.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.

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