Does Newmont's 25% Gain in 3 Months Justify Buying the Stock Now?

Newmont Corporation's NEM shares have rallied 24.8% in the past three months, outperforming the Zacks Mining – Gold industry's rise of 12.4%. Forecast-topping earnings performance in the second quarter on the back of higher selling prices and production, along with a surge in gold prices, has contributed to the run-up in NEM's shares.

The stock is currently trading at a roughly 6% discount to its 52-week high of $53.88, reached on Aug. 30, 2024.

Technical indicators show that NEM has been unremittingly trading above the 200-day simple moving average since April 23, 2024. After a series of ebbs and flows, the stock broke the 50-day SMA on July 3, 2024.  Following a golden crossover on May 13, 2024, the 50-day SMA continues to read higher than the 200-day moving average, manifesting a bullish trend, with the 200-day SMA acting as the support level.

Newmont's Shares Trade Above 50-Day SMA

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Is the time right to buy NEM's shares for potential upside? Let's take a look at the stock's fundamentals.

NEM Stock Well Poised on Key Projects & Newcrest Buyout

Newmont continues to invest in growth projects in a calculated manner. The company is pursuing several projects, including Tanami Expansion 2 in Australia, the Ahafo North expansion in Ghana and Cadia Block Caves in Australia. These projects should expand production capacity and extend mine life, thereby driving revenues and profits.

The acquisition of Newcrest Mining Limited has also created an industry-leading portfolio with a multi-decade gold and copper production profile in the most favorable mining jurisdictions globally. The combination of Newmont and Newcrest is expected to deliver significant value for shareholders and generate meaningful synergies, with $500 million in total annual pre-tax benefits expected by the end of 2025. NEM also remains on track to meet its 2024 gold production target of around 6.9 million ounces with solid performances of its managed Tier 1 assets and contributions of the sites acquired from the Newcrest buyout.

Solid Financial Health Supports NEM's Capital Allocation

Newmont has a strong liquidity position and generates substantial cash flows, which allows it to fund its growth projects, meet short-term debt obligations and drive shareholder value. At the end of the second quarter of 2024, Newmont had liquidity of $6.8 billion, including cash and cash equivalents of around $2.6 billion. Its operating cash flow more than doubled year over year to around $1.4 billion. NEM also generated $594 million in free cash flow and returned roughly $539 million to its shareholders through dividends and share buybacks in the quarter.

As a leading gold producer, Newmont also stands to benefit significantly from the record-setting upswing in gold prices, which should boost its profitability and drive cash flow generation. Gold prices are hitting record highs this year, and the yellow metal has been among the best-performing assets.

Prices skyrocketed to surpass the $2,500 per ounce level for the first time on Aug. 2, 2024, as ebbing inflation raised hopes of a U.S. interest rate cut in September. Increased tensions in the Middle East and concerns over an economic slowdown also fueled safe-haven demand. Prices rallied to a record high of $2,531.70 per ounce on Aug. 20, 2024, on growing Fed rate cut expectations.

NEM offers a healthy dividend yield of 2% at the current stock price. Its payout ratio is 47% (a ratio below 60% is a good indicator that the dividend will be sustainable), with a five-year annualized dividend growth rate of 15.5%. Backed by strong cash flows and sound financial health, the company's dividend is perceived to be safe and reliable.

NEM's Higher Production Costs A Concern

Newmont is being challenged by higher production costs, which will likely weigh on its margins over the near term. Its gold costs applicable to sales rose roughly 13% year over year in 2023. Newmont also saw a 19% surge in all-in-sustaining costs — the most important cost metric of miners. Both cost metrics increased year over year in the second quarter of 2024. The impacts of increased direct operating costs are leading to cost inflation. Higher materials, labor and contract services costs, despite easing somewhat lately, remain as concerns.

Newmont's Earnings Estimates Going Up

Earnings estimates for NEM have been going up over the past 60 days, reflecting analysts' optimism. The Zacks Consensus Estimate for 2024 and 2025 have been revised upward over the same time frame. 
The Zacks Consensus Estimate for 2024 earnings is currently pegged at $2.82, reflecting an expected year-over-year growth of 75.2%. Earnings are expected to register a roughly 20.6% growth in 2025. NEM has a long-term EPS growth rate of 48.5% versus 28.1% for its industry.

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NEM's Valuation: A Bit Stretched But Reasonable

Newmont is currently trading at a forward 12-month earnings multiple of 15.74X, a roughly 4.9% premium to the industry average of 15X. The valuation looks reasonable, considering the company's healthy earnings trajectory.

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Newmont Outperforms S&P 500

Thanks to the rally in gold prices, NEM's shares have racked up a gain of 22.6% year to date, underperforming the industry's 24% rise but topping the S&P 500's rise of 13.3%. Its gold mining peers, Barrick Gold Corporation GOLD, Agnico Eagle Mines Limited AEM and Kinross Gold Corporation KGC, have gained 6.6%, 41.8% and 40.8%, respectively, over the same period.

NEM's YTD Price Performance

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How Should Investors Play the NEM Stock?

NEM presents an attractive investment case backed by a robust portfolio of growth projects, solid financial health and bullish technicals. Other positives include a healthy growth trajectory, rising earnings estimates and an attractive dividend yield. Rallying gold prices should also boost NEM's profitability and drive cash flow generation. Despite the upbeat growth prospects, its high production costs warrant caution. Holding onto this Zacks Rank #3 (Hold) stock will be prudent for investors who already own it.

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