Citi's global commodity team says large-cap gold miners are undervalued relative to bullion and names Newmont and Agnico Eagle Mines as its top picks. The bank projects gold at $5,000 an ounce by late 2027 and says current equity valuations imply a price roughly $500 below spot.
Citi's global commodity team is telling investors that gold miners haven't caught up with the metal's rally. The bank projects gold prices will reach $5,000 per ounce by the end of 2027. Gold equities currently trade at valuations that imply a gold price roughly $500 per ounce below current spot levels. That gap, Citi argues, gives gold stocks room to outperform even if bullion prices simply hold steady.
Margins widen as costs lag gold's rise
The bank points to strong free cash flow yields at large-cap miners as the core of its case. Costs are rising, but at a much lower rate than gold prices, letting miners expand margins. Citi also says capital allocation across large-cap gold companies remains sensible, with firms balancing reinvestment in operations against shareholder returns. Dividend yields, the bank notes, are what separate mining equities from holding physical gold and would provide downside protection if prices fall, as happened during the 2012-2016 period.
Newmont and Agnico Eagle top the list
Citi names Newmont as its preferred large-cap pick, citing a spot free cash flow yield of roughly 6%. Newmont's second-quarter adjusted earnings of $2.10 a share on revenue of $6.12 billion fell short of analyst expectations. Following the results, Raymond James raised its price target on the stock, while Argus lowered its target.
Agnico Eagle Mines is Citi's other top pick, though the bank estimates its spot free cash flow yield at a lower 4.5%. Its second-quarter results narrowly missed earnings and revenue estimates, but the company produced a record quarterly free cash flow of over $1.3 billion. Citi maintains a positive view on both companies' ability to benefit from controlled cost inflation alongside current gold prices.
Source: Investing.com
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