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Harmony Gold Stock Trading Cheaper Than Industry: Buy or Hold?
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Harmony Gold Mining Company Limited (HMY - Free Report) stock looks attractive from a valuation perspective. HMY is currently trading at a forward price/earnings of 6.8X, a roughly 46.7% discount when stacked up with the Zacks Mining – Gold industry’s average of 12.75X. It also has a Value Score of A.
HMY is currently trading at a roughly 24.6% discount to its 52-week high of $12.29, reached on Oct. 22, 2024, as gold prices catapulted to new highs on U.S. election uncertainties and heightened geopolitical tensions.
Harmony’s cheap valuation should lure investors seeking value. But is the time right to buy HMY’s shares based on its attractive valuation? Let’s delve deeper.
Image Source: Zacks Investment Research
HMY Stock Outperforms Industry and S&P 500
Thanks to the rally in gold prices, HMY’s shares have surged 50.6% year to date, outperforming the industry’s rise of 21.3% and the S&P 500’s increase of 25.7%. Its peers, Gold Fields Limited (GFI - Free Report) and DRDGOLD Limited (DRD - Free Report) have racked up a gain of 1.7% and 22.1%, respectively, over the same period.
HMY’s YTD Price Performance
Image Source: Zacks Investment Research
Technical indicators show HMY stock eclipsed its 200-day simple moving average (SMA) on Nov. 18, 2024, following a momentary pullback since Nov. 13 as gold prices retreated due to a strengthening U.S. dollar. The stock, for the most part, has traded above the 200-day SMA this year. However, Harmony is currently trading below the 50-day SMA. Nevertheless, the 50-day SMA continues to read higher than the 200-day SMA, indicating a bullish trend.
HMY Trades Below 50-Day SMA
Image Source: Zacks Investment Research
Wafi-Golpu & Eva Copper Projects Underpin HMY’s Growth
Harmony is South Africa's biggest gold producer by volume, with production of roughly 1.56 million ounces in fiscal 2024. It has a diverse portfolio of gold development projects spread across South Africa and Papua New Guinea (PNG). The company’s development projects currently in progress include the development of the Wafi-Golpu copper-gold project in PNG and the Eva Copper project in Australia. The Wafi-Golpu project is believed to be a game-changer for the company, with an estimated reserve of 13 million ounces of gold. HMY is currently in negotiations with its joint venture partner Newmont Corporation (NEM - Free Report) and the PNG Government regarding the terms of a Mining Development Contract, which is required for a Special Mining Lease.
The low-risk Eva Copper project in Australia offers additional upside, giving HMY a significant global copper-gold footprint. HMY acquired Eva Copper in 2022, adding a tier-one mining jurisdiction to its portfolio. The acquisition is in line with HMY’s objective of transitioning into a low-cost gold and copper mining company. The feasibility study update for the project is currently underway. HMY has received a conditional grant funding from the Queensland government, which will help accelerate the development of this project. It is subject to several conditions, including HMY reaching a positive final investment decision by January 2026. Eva Copper is expected to produce 50,000-60,000 tons of copper per annum.
Rallying Gold Prices to Drive HMY’s Profitability
Gold has been among the best-performing assets this year. Prices of the yellow metal have rallied roughly 27% this year, driven by strong demand from central banks, a dovish Fed interest rate outlook, global uncertainties and a surge in safe-haven demand thanks to increased tensions in the Middle East. While a stronger U.S. dollar weighed on the yellow metal recently, gold prices are regaining strength on heightened uncertainty over the Russia-Ukraine conflict. Prices are also likely to gain support on prospects of another rate cut in December. HMY’s adjusted earnings surged 120% year over year in fiscal 2024 on an 11% rise in average gold prices. In first-quarter fiscal 2025, HMY recorded a roughly 25% increase in average gold prices received to $2,356 per ounce. Higher gold prices should boost HMY’s profitability and drive cash flow generation.
Harmony Gold’s Solid Financial Health Bodes Well
Harmony boasts a strong balance sheet and generates substantial cash flows, which allows it to finance its development projects and drive shareholder value. Its net cash increased roughly 129% to $362 million at the end of first-quarter fiscal 2025 from $158 million at the end of fiscal 2024. The company ended the first quarter with solid liquidity of $910 million. Its operating free cash flow also climbed 60% year over year to $288 million in the quarter, driven by higher average gold prices. HMY also has a dividend policy to pay 20% of net free cash generated to shareholders at its board’s discretion.
Higher Costs Strain HMY’s Margins
Harmony, like most miners, is exposed to higher costs, which are likely to weigh on its margins over the near term. Labor and electricity remain the largest component of its cost structure. It saw a roughly 19% surge in all-in-sustaining costs (in dollars) in the first quarter of fiscal 2025 due to higher labor costs and winter tariffs on electricity. Total cash costs also climbed 18% year over year in the quarter. Total cash operating costs (in dollars) also rose around 4% year over year in full-year fiscal 2024. HMY saw a 21% increase in electricity costs in fiscal 2024 due to higher annual tariffs charged by Eskom. While the company is implementing various energy-saving initiatives and launching a renewable energy program, the burden of higher electricity costs is unlikely to abate over the near term due to higher tariffs.
HMY’s FY25 Earnings Estimates Moving Lower
Earnings estimates for HMY for fiscal 2025 have been going down over the past 60 days. The Zacks Consensus Estimate for fiscal 2026 has been revised upward over the same time frame.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Image Source: Zacks Investment Research
How Should Investors Play the HMY Stock?
Harmony is advancing several key development projects, including Wafi-Golpu and Eva Copper, which are expected to enhance production and expand its international footprint. The acquisition of Eva Copper aligns with the company’s goal of transitioning into a low-cost gold and copper producer. Rallying gold prices are also expected to drive HMY’s performance. Solid liquidity and effort to drive cash flow also augur well. Despite HMY’s attractive valuation, its high electricity and labor costs warrant caution. Therefore, holding onto this Zacks Rank #3 (Hold) stock will be prudent for investors who already own it.
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Harmony Gold Stock Trading Cheaper Than Industry: Buy or Hold?
Harmony Gold Mining Company Limited (HMY - Free Report) stock looks attractive from a valuation perspective. HMY is currently trading at a forward price/earnings of 6.8X, a roughly 46.7% discount when stacked up with the Zacks Mining – Gold industry’s average of 12.75X. It also has a Value Score of A.
HMY is currently trading at a roughly 24.6% discount to its 52-week high of $12.29, reached on Oct. 22, 2024, as gold prices catapulted to new highs on U.S. election uncertainties and heightened geopolitical tensions.
Harmony’s cheap valuation should lure investors seeking value. But is the time right to buy HMY’s shares based on its attractive valuation? Let’s delve deeper.
HMY Stock Outperforms Industry and S&P 500
Thanks to the rally in gold prices, HMY’s shares have surged 50.6% year to date, outperforming the industry’s rise of 21.3% and the S&P 500’s increase of 25.7%. Its peers, Gold Fields Limited (GFI - Free Report) and DRDGOLD Limited (DRD - Free Report) have racked up a gain of 1.7% and 22.1%, respectively, over the same period.
HMY’s YTD Price Performance
Technical indicators show HMY stock eclipsed its 200-day simple moving average (SMA) on Nov. 18, 2024, following a momentary pullback since Nov. 13 as gold prices retreated due to a strengthening U.S. dollar. The stock, for the most part, has traded above the 200-day SMA this year. However, Harmony is currently trading below the 50-day SMA. Nevertheless, the 50-day SMA continues to read higher than the 200-day SMA, indicating a bullish trend.
HMY Trades Below 50-Day SMA
Wafi-Golpu & Eva Copper Projects Underpin HMY’s Growth
Harmony is South Africa's biggest gold producer by volume, with production of roughly 1.56 million ounces in fiscal 2024. It has a diverse portfolio of gold development projects spread across South Africa and Papua New Guinea (PNG). The company’s development projects currently in progress include the development of the Wafi-Golpu copper-gold project in PNG and the Eva Copper project in Australia. The Wafi-Golpu project is believed to be a game-changer for the company, with an estimated reserve of 13 million ounces of gold. HMY is currently in negotiations with its joint venture partner Newmont Corporation (NEM - Free Report) and the PNG Government regarding the terms of a Mining Development Contract, which is required for a Special Mining Lease.
The low-risk Eva Copper project in Australia offers additional upside, giving HMY a significant global copper-gold footprint. HMY acquired Eva Copper in 2022, adding a tier-one mining jurisdiction to its portfolio. The acquisition is in line with HMY’s objective of transitioning into a low-cost gold and copper mining company. The feasibility study update for the project is currently underway. HMY has received a conditional grant funding from the Queensland government, which will help accelerate the development of this project. It is subject to several conditions, including HMY reaching a positive final investment decision by January 2026. Eva Copper is expected to produce 50,000-60,000 tons of copper per annum.
Rallying Gold Prices to Drive HMY’s Profitability
Gold has been among the best-performing assets this year. Prices of the yellow metal have rallied roughly 27% this year, driven by strong demand from central banks, a dovish Fed interest rate outlook, global uncertainties and a surge in safe-haven demand thanks to increased tensions in the Middle East. While a stronger U.S. dollar weighed on the yellow metal recently, gold prices are regaining strength on heightened uncertainty over the Russia-Ukraine conflict. Prices are also likely to gain support on prospects of another rate cut in December. HMY’s adjusted earnings surged 120% year over year in fiscal 2024 on an 11% rise in average gold prices. In first-quarter fiscal 2025, HMY recorded a roughly 25% increase in average gold prices received to $2,356 per ounce. Higher gold prices should boost HMY’s profitability and drive cash flow generation.
Harmony Gold’s Solid Financial Health Bodes Well
Harmony boasts a strong balance sheet and generates substantial cash flows, which allows it to finance its development projects and drive shareholder value. Its net cash increased roughly 129% to $362 million at the end of first-quarter fiscal 2025 from $158 million at the end of fiscal 2024. The company ended the first quarter with solid liquidity of $910 million. Its operating free cash flow also climbed 60% year over year to $288 million in the quarter, driven by higher average gold prices. HMY also has a dividend policy to pay 20% of net free cash generated to shareholders at its board’s discretion.
Higher Costs Strain HMY’s Margins
Harmony, like most miners, is exposed to higher costs, which are likely to weigh on its margins over the near term. Labor and electricity remain the largest component of its cost structure. It saw a roughly 19% surge in all-in-sustaining costs (in dollars) in the first quarter of fiscal 2025 due to higher labor costs and winter tariffs on electricity. Total cash costs also climbed 18% year over year in the quarter. Total cash operating costs (in dollars) also rose around 4% year over year in full-year fiscal 2024. HMY saw a 21% increase in electricity costs in fiscal 2024 due to higher annual tariffs charged by Eskom. While the company is implementing various energy-saving initiatives and launching a renewable energy program, the burden of higher electricity costs is unlikely to abate over the near term due to higher tariffs.
HMY’s FY25 Earnings Estimates Moving Lower
Earnings estimates for HMY for fiscal 2025 have been going down over the past 60 days. The Zacks Consensus Estimate for fiscal 2026 has been revised upward over the same time frame.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
How Should Investors Play the HMY Stock?
Harmony is advancing several key development projects, including Wafi-Golpu and Eva Copper, which are expected to enhance production and expand its international footprint. The acquisition of Eva Copper aligns with the company’s goal of transitioning into a low-cost gold and copper producer. Rallying gold prices are also expected to drive HMY’s performance. Solid liquidity and effort to drive cash flow also augur well. Despite HMY’s attractive valuation, its high electricity and labor costs warrant caution. Therefore, holding onto this Zacks Rank #3 (Hold) stock will be prudent for investors who already own it.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.