Goldman Sachs’ Andrew Quail believes the 87 ppt underperformance seen by Eldorado Gold Corp (USA) EGO versus the GDX, year to date, was unwarranted.
Quail upgraded the rating on the company from Neutral to Buy, while raising the price target from $4.40 to $5.00.
Growth Opportunities
The analyst believes Eldorado Gold is well positioned to fund its “highly prospective” organic growth opportunities, and expects growth project to drive adjusted free cash flow improvement of 60 percent for the company by the end of 2018.
“A pro forma analysis based on EGO’s expectations suggests that if the $900mn of pending China asset sales close in 2H16 (per guidance), it will likely have the only net cash balance sheet across our gold coverage,” Quail mentioned.
Positive For Stock
The analyst expects the stock to react favorably to updates on important organic growth projects, expected at the company’s investor day in September. The updates are likely to include details regarding the development projects in Greece, which would offer clarity regarding Eldorado Gold’s growth pipeline.
Reinstatement Of Dividend
In addition, Quail expects the company to reinstate its dividend in early 2017, saying, “EGO’s outlook and the gold market have both improved since it suspended its dividend in early 2016. We flag the potential for a resumption in 2017.”
The EBITDA estimates for 2016, 2017 and 2018 have been raised to reflect the lower AISC estimates.
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