Credit Suisse Upgrades Barrick Gold To Outperform

Credit Suisse’s Anita Soni believes that Barrick Gold Corporation (USA) ABX is “ideally positioned” due to its capital allocation strategy to capture gold leverage.

The analyst upgraded the rating on the company from Neutral to Outperform, while raising the price target from $11 to $17.

Capital Allocation Strategy

Soni explained that Barrick Gold’s commitment to an ROIC of 15 percent differentiates the company in the gold sector.

“This strategy positions ABX to effectively capture the leverage through prudent deployment of cash flow that would accrue during a period of higher gold prices,” the analyst stated.

Soni also pointed out that the company was on track to reducing its debt to a more manageable level, from $13 billion at the end of 2014 to a target of $8 billion by the end of 2016.

Soni believes that this process could be accelerated by a higher gold price.

Premium Justified

Soni also mentioned that Barrick Gold deserves a P/NAV premium during 2016 due to the “execution on its capital allocation strategy through prudent asset divestitures, and now potentially selective M&A.”

In addition, the company has made progress in decentralizing its operating model, which Soni believes is a year ahead of Goldcorp Inc. (USA) GG.

The analyst also noted the improvement in Barrick Gold’s executive compensation model, with below peer average pay in 2015.

Soni also pointed out that the company had “a production profile that is now comparable to peers.”