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Bear of the Day: Newmont Corp. (NEM)

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Newmont Corporation (NEM - Free Report) is engaged in the exploration and production of gold, copper, silver, zinc and lead. The company operates primarily in North America, South America, Australia, and Africa. Newmont is one of the world’s largest producers of gold with several active mines in Peru, Australia, Ghana, and Nevada.

Founded in 1916 and headquartered in Denver, Colorado, Newmont has over 30,000 employees and contractors worldwide and is a member of the S&P 500.

The Zacks Rundown

Newmont, a Zacks Rank #5 (Strong Sell), is a component of the Zacks Mining – Miscellaneous industry group. This industry ranks in the bottom 34% out of more than 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months, just as it has so far this year:

Zacks Investment Research
Image Source: Zacks Investment Research

Stocks in the bottom tiers of industries can often be potential candidates for short positions. While individual stocks have the ability to outperform even when they are part of a lackluster industry group, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much more difficult.

Despite a rebound in stocks with the Dow and S&P 500 hitting new all-time highs, NEM shares have not been participating lately. The stock has experienced considerable volatility over the past year.

Past Earnings Misses and Deteriorating Outlook

Heading into today’s quarterly release, NEM had fallen short of earnings estimates in three of the prior four quarters. The company delivered a trailing four-quarter average earnings miss of -3.71%. Note that stocks can experience heightened volatility (in both directions) surrounding earnings announcements.

The company is grappling with higher production costs and a considerable rise in overall capital expenditures. Furthermore, a downward revision in gold production guidance last year along with various operational challenges have added to near-term uncertainty.

Newmont has been on the receiving end of negative earnings estimate revisions as of late. As we zoom out and look at fiscal 2024 as a whole, analysts have decreased EPS estimates by 11.69% in the past 60 days. The Zacks Consensus Estimate now stands at $2.19/share.

Zacks Investment Research
Image Source: Zacks Investment Research

Falling earnings estimates are a huge red flag and need to be respected. A history of missing earnings estimates is the opposite of what the bulls want to see.

Technical Outlook

As illustrated below, NEM stock is in a sustained downtrend and has witnessed considerable volatility, all while the general market reaches new heights. Notice how both the 50-day and 200-day moving averages are sloping down signaled by the blue and red lines, respectively. The stock has made a series of lower lows over the past year.

Image Source: StockCharts

NEM stock has also experienced what is known as a ‘death cross’, wherein the stock’s 50-day moving average crosses below its 200-day moving average. Newmont would have to make a surprising move to the upside and show increasing earnings estimate revisions to warrant taking any long positions. Shares have fallen more than 23% in the past year alone.

Final Thoughts

A deteriorating fundamental and technical backdrop show that this stock is not set to hit new highs anytime soon. The fact that NEM stock is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns. A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend.

Highlighted underperformance bodes well for the bears. Potential investors may want to consider including this stock as part of a short or hedge strategy. Bulls will want to steer clear of NEM shares until the situation shows major signs of improvement.

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