Is Goldcorp Inc. the Top Turnaround Stock in the Gold Industry?

Goldcorp Inc. (TSX:G)(NYSE:GG) released second-quarter earnings on July 30, and its stock reacted by falling over 1%. Is this a buying opportunity?

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Goldcorp Inc. (TSX:G)(NYSE:GG), one of world’s largest producers of gold, announced second-quarter earnings results before the market opened on July 30, and its stock responded by falling over 1% in the day’s trading session. The stock now sits more than 49% below its 52-week high of $32.32 reached back in August 2014, so let’s take a closer look at the results to determine if the stock is a turnaround play, or if we should avoid it indefinitely.

The results that sent its shares lower

Here’s a summary of Goldcorp’s second-quarter earnings results compared with its results in the same period a year ago. All figures are in U.S. dollars.

Metric Q2 2015 Q2 2014
Adjusted Earnings Per Share $0.08 $0.20
Adjusted Revenue $1.32 billion $1.12 billion

Source: Goldcorp Inc.

Goldcorp’s adjusted earnings per share decreased 60% and its adjusted revenue increased 18% compared with the second quarter of fiscal 2014. Its steep decline in earnings per share can be attributed to its adjusted net income decreasing 60.4% to $65 million, which the company noted was a result of “lower realized margins on gold and by-product metal sales…higher production costs…[and] higher depreciation and depletion expenses.”

Its very strong revenue growth can be attributed to its increased sales volumes, including its gold sales increasing 41.2% to 903,000 ounces and its silver sales increasing 10% to 10.79 million ounces, which more than offset the negative impact of its average realized gold price decreasing 8.3% to $1,189 per ounce and its average realized silver price decreasing 17.5% to $14 per ounce.

Here’s a quick breakdown of 14 other notable statistics from the report compared with the year-ago period:

  1. Gold production increased 40% to a record 908,000 ounces
  2. Silver production increased 6.4% to 10.43 million ounces
  3. Copper production decreased 55.4% to 8.6 million pounds
  4. Copper sold decreased 64.6% to 4.6 million pounds
  5. Average realized copper price decreased 21.2% to $2.67 per pound
  6. Lead production increased 23.1% to 47.5 million pounds
  7. Lead sold increased 11.6% to 48.2 million pounds
  8. Average realized lead price decreased 11.3% to $0.86 per pound
  9. Zinc production increased 14.8% to 105.5 million pounds
  10. Zinc sold increased 15.5% to 88.9 million pounds
  11. Average realized zinc price decreased 1% to $0.99 per pound
  12. Adjusted operating cash flows decreased 4.8% to $358 million
  13. Reported free cash flow of $174 million, compared to a cash use of $240 million in the year-ago period
  14. Weighted average number of shares outstanding increased 2.1% to 829.99 million

On a very sour note, Goldcorp went on to announce a 60% reduction to its monthly dividend to $0.02 per share, and this will be effective as of August 1.

Should you buy Goldcorp?

It was a solid quarter overall for Goldcorp, but its dividend reduction put a damper on the results, so I think the drop in its stock was warranted. With this being said, I think the stock represents a great long-term investment opportunity today because it trades at favourable forward valuations, including just 26.5 times fiscal 2016’s estimated earnings per share of $0.62, which is inexpensive given its five-year average price-to-earnings multiple of 28.5 and its long-term growth potential.

With all of the information provided above in mind, I think Goldcorp is one of the top turnaround plays in the gold industry today. Foolish investors should strongly consider beginning to scale in to long-term positions over the next couple of trading sessions.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joseph Solitro has no position in any stocks mentioned.

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