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Can Newmont (NEM) Keep its Earnings Streak Alive in Q4?

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Gold miner Newmont Mining Corporation (NEM - Free Report) is scheduled to report fourth-quarter 2015 results after the closing bell on Feb 17.

In the last quarter, Newmont had delivered a positive earnings surprise of roughly 21%. However, the company’s profit for the quarter declined roughly 4% year over year, mainly affected by lower metal prices. Newmont has beaten the Zacks Consensus Estimate in all of the trailing four quarters with an average beat of 47.17%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Newmont, in Oct 2015, reiterated its attributable gold production guidance for 2015 in a range of 4.7–5.1 million ounces. This is because higher production at Boddington and Akyem is anticipated to offset lower production at Cripple Creek & Victor (CC&V), stemming from slower mill ramp-up. Also, the company’s copper production guidance for 2015 remains unaltered.

In Dec 2015, Newmont provided its updated long-term operating and financial outlook. The company anticipates attributable gold production to increase from a range of 4.8−5.3 million ounces in 2016 to 5.2−5.7 million ounces in 2017, and remain stable thereafter in a range of 4.5−5 million ounces through 2020.

Newmont anticipates attributable copper production in the range of 120,000–160,000 tons in 2016 and 2017. However, it expects a decline in copper production to between 70,000 and 110,000 tons by 2018 owing to depletion of higher grade Phase 6 ore at Batu Hijau in 2018.

A still weak gold price environment remains a concern as it might weigh on the company’s margins in the to-be-reported quarter. Newmont’s average realized gold prices fell 13% in the third quarter.

Also, Newmont still faces challenges in the copper market, stemming from the oversupply of the metal, which poses a threat to copper prices. A slowdown in demand in China, triggered by the country's tepid property market and weaker infrastructure investment growth, is weighing on copper prices.

Nevertheless, Newmont should gain from its cost management initiatives in the December quarter. Successful cost reductions are allowing the company to generate positive free cash flow and helping it to mitigate the unfavorable impact of lower commodity prices.

Earnings Whispers

Our proven model does not conclusively show that Newmont is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below:

Zacks ESP: Earnings ESP for Newmont is -28.57%. This is because the Most Accurate Estimate stands at 10 cents, while the Zacks Consensus Estimate is pegged at 14 cents.

Zacks Rank: Newmont’s Zacks Rank #3 (Hold) increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks that Warrant a Look

Here are some companies in the basic materials sector you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

First Majestic Silver Corp. (AG - Free Report) has an Earnings ESP of +33.33% and a Zacks Rank #3.

Pan American Silver Corp. (PAAS - Free Report) has an Earnings ESP of +12.50% and a Zacks Rank #3.

Albemarle Corporation (ALB - Free Report) has an Earnings ESP of +1.20% and a Zacks Rank #3.

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