Morgan Stanley’s Dan Shaw downgraded the rating on Randgold Resources Ltd. (ADR) GOLD from Overweight to Equal-Weight, while raising the price target from GBp3,990 to GBp5380.
Time to Take Profits
Shaw mentioned that following the 53 percent year-to-date appreciation in share price, the time was right to take profits.
The analyst explained that the stock appeared fully valued, implying metal prices “far above spot leaving their risk-rewards skewed to the downside.”
According to the Morgan Stanley report, the stock is pricing in gold price at $1,890/oz, or using spot prices and “working back” to the share price suggests that the market is accounting for a discount rate of 1 percent.
“However, the company has a net cash balance sheet and an excellent track record of developing gold mines while maintaining a strict capital allocation discipline, which keeps us Equal-weight,” the report stated.
Best In Class
Gold and silver prices have risen 16 percent and 17 percent year-to-date, respectively. With this, exposed stocks have also meaningfully rallied, although some stocks now appear expensive.
The analyst believes that Randgold Resources continues to be best-in-class in the sector, with lowest cost assets and a robust balance sheet. The company continues to also be one of the most liquid names in the sector, with significant exposure to precious metal pricing.
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