With a daily gain of 3.39% and a 3-month gain of 6.01%, Kinross Gold Corp (KGC, Financial) has reported an Earnings Per Share (EPS) (EPS) of 0.16. The question that arises is whether the stock is modestly undervalued. This article aims to provide a comprehensive valuation analysis of Kinross Gold (KGC) that will help answer this question. So, let's dive in.
Company Introduction
Kinross Gold is a Canada-based gold producer that produced approximately 2 million gold equivalent ounces in 2022. The company operates mines in the Americas and West Africa, following the sale of its low-cost Russian operations in 2022 in response to the invasion of Ukraine. Kinross Gold has traditionally used acquisitions to fuel expansion into new regions and production growth. In 2022, Kinross acquired the Great Bear project in Canada, which is expected to produce an average of more than 500,000 ounces of gold per year for at least a decade.
As of September 15, 2023, Kinross Gold's stock price is $5.19, with a market cap of $6.30 billion. The GF Value, our estimate of the stock's fair value, is $6.58. This suggests that Kinross Gold's stock could be modestly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor derived from the company's past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded.
If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. Based on our calculations, Kinross Gold's stock appears to be modestly undervalued at its current price of $5.19 per share, suggesting that the long-term return of its stock is likely to be higher than its business growth.
Financial Strength
Before investing in a company, it's crucial to assess its financial strength. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage can provide valuable insights into a company's financial strength. Kinross Gold has a cash-to-debt ratio of 0.19, ranking lower than 87.45% of 2597 companies in the Metals & Mining industry. This suggests that Kinross Gold's financial strength is fair, with a score of 5 out of 10.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. Kinross Gold has been profitable in 4 of the past 10 years. Over the past twelve months, the company had a revenue of $4 billion and an EPS of $0.16. Its operating margin is 7.65%, ranking better than 66.39% of 848 companies in the Metals & Mining industry. This suggests that Kinross Gold's profitability is fair, with a score of 5 out of 10.
Growth is a crucial factor in a company's valuation. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. However, Kinross Gold's 3-year average annual revenue growth rate is -0.2%, ranking lower than 74.42% of 606 companies in the Metals & Mining industry. The 3-year average EBITDA growth rate is -18.3%, ranking lower than 77.17% of 1857 companies in the Metals & Mining industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can provide valuable insights into its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. Over the past 12 months, Kinross Gold's ROIC was 1.94, while its WACC was 5.48.
Conclusion
In conclusion, Kinross Gold's stock appears to be modestly undervalued. The company's financial condition is fair, and its profitability is fair. However, its growth ranks lower than 77.17% of 1857 companies in the Metals & Mining industry. For more details about Kinross Gold's stock, you can check out its 30-Year Financials here.
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