Barrick Gold (NYSE:ABX) reports earnings after the bell on Oct. 24. Analysts expect the world’s largest gold producer to produce an earnings decline. However, since the fourth quarter began on Oct. 1, a drop in the general market has boosted gold and, by extension, ABX stock. When Barrick finally reports third-quarter earnings, the question may involve not how much the report affects the stock, but how much relevance investors place on a backward-looking report.
Wall Street forecasts consensus ABX earnings of 5 cents per share in earnings for ABX stock for the third quarter. This represents a massive decline from the same quarter last year. At that time, the company reported quarterly earnings of 16 cents per share.
Investors should note that Barrick Gold stock has experienced a mixed history on earnings. Some quarters it beats earnings, others it fails to meet expectations. This adds an element of unpredictability when trying to predict how the market will react to the report.
ABX Stock Remains a Proxy for Gold Prices
Much like Freeport-McMoRan (NYSE:FCX), Newmont Mining (NYSE:NEM) and other peers, the stock seems to follow the performance of the base metal which it mines. The yellow metal has remained range-bound for most of the decade. As such, ABX stock has never recovered from the early part of the decade when it briefly traded above $55 per share. Over the last five years, ABX has rarely traded above $20 per share and, at times, it has fallen below $10 per share. Its current price of around $13 per share remains well within that range.
Unfortunately for holders of ABX stock, gold’s fundamentals looked particularly bleak over the summer. After passing $1,350 per oz. in the spring, the precious metal saw a substantial decline over the summer, briefly falling as low as $1,175 per oz. in September. Investors received some good news in September when the company announced its purchase of Randgold Resources (NASDAQ:GOLD). Still, the upcoming earnings report will probably focus on the third-quarter price trend.
Gold Prices Reversed Course After the Quarter Ended
However, gold has shown recent signs of recovery since the previous quarter ended. It currently trades at around $1,240 per oz. Moreover, ABX stock has bucked the decline seen in the general market over the last week. The S&P 500 has fallen by more than 8% from the 52-week highs seen on October 3rd. Over the same period, the price of gold has risen by about 3%. This has taken Barrick Gold stock higher by 16% over the same period.
Given the activity that has occurred in October, the occurrences of the July-September period may seem outdated. For this reason, investors could shrug off the report as no longer relevant. Conversely, it could serve as a reminder of the fickle trading nature of gold stocks.
However Wall Street reacts, investors should remember that gold remains well within the range where it has traded in the last five years. For people to move into gold, I think investors need to see a greater level of panic, specifically one that takes gold above $1,400 per oz. Bond worries in Italy, trade-war fears, or earnings misses could continue to attract investors to gold. However, unless it breaks gold out of its long-term trading range, I see no case for buying ABX stock. This holds regardless of whether investors see backward or forward-looking numbers for the equity.
Final Thoughts on ABX Stock
Given the robust fourth-quarter activity in ABX stock, investors should question how much third-quarter numbers will affect the equity. Analysts forecast an earnings decline by more than two-thirds from the same quarter last year. Gold, its principal product, also saw a substantial decrease in the third quarter.
However, since that quarter ended, the price of gold has rebounded, and so has ABX stock. Although merger-related news could change this thesis, the upcoming earnings report may have become less relevant for today’s trading. Given this reality, the reaction of traders to old news could carry more significance than the actual earnings and revenue numbers for the third quarter. Still, with the stock expected to remain range-bound, I doubt the upcoming report will change the prevailing investment thesis on Barrick Gold stock.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.