AuRico Gold Spikes Higher Following Raymond James Upgrade

Raymond James upgraded AuRico Gold Inc (NYSE: AUQ) Wednesday from Market Perform to Buy and maintained a $4.50 price target.

Analyst Phil Russo felt the recent selloff was overdone and believed the company remained "positioned to continue its execution momentum at Young Davidson."

"Our position on AuRico has always been a valuation call (given we believe in the Young Davidson asset) with that premium now compressed to levels that present an attractive entry point for investors, not only from a market re-rating perspective, but also for the intrinsic M&A potential that Young Davidson offers," according to Russo.

The analyst also noted that the stock had historically commanded a premium relative to peers and that it offered limited downside risk at current levels.

The Young Davidson mine also offered a 20-year lifespan with "mine-level all-in costs" at the $900/oz level. These attributes might attract potential suitors as it was viewed as a "trade-up in asset quality."

Russo thought the company provided a "compelling investment outlook" with growing production and cash flow along with a balance sheet that could support the Young Davidson mine toward its 2016 design goal.

For 2015, the company expected gold prices at $1,250/oz and estimated the total cash cost at $739/oz. 2015 EPS was estimated at a loss of $(0.14) with a NAV of $2.97 and revenue of $305 million.

To arrive at the $4.50 price target, the firm applied a 1.4x P/NAV multiple to its NAVPS estimate based on its "view of the relative risk of AuRico's operations, production base, balance sheet and size."

AuRico Gold recently traded at $2.74, up 2.6 percent.