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Yamana Gold (AUY): What's in Store this Earnings Season?

Yamana Gold Inc. AUY is set to release first-quarter 2016 results after the market closes on May 4.

Yamana has posted an average negative earnings surprise of 25% in the trailing four quarters. Its adjusted loss for fourth-quarter 2015 was a penny per share compared with a loss of 2 cents in the year-ago quarter. Let’s see how things are shaping up for this announcement.

Factors to Consider

In 2015, the company delivered annual production of roughly 1.28 million ounces of gold which was within its guidance, 9 million ounces of silver, also within its guidance, and 131 million pounds of copper, which was above management’s guidance.

Production was achieved at lower year-over-year costs, with cost at mines among the lowest in the industry and cost at Yamana’s cornerstone mines in particular also among the lowest in the industry.

During the fourth quarter, Yamana focused on managing core and cornerstone assets without overlook smaller assets with considerable leverage to gold price. The company set up an Executive Vice President structure and promoted from within into these positions to gather the experience in exploration, business development and operations through common oversight.

Yamana remains focused on debt reduction and cost improvements actions. Following debt reductions of over $286 million during 2015, the company aims at a further debt reduction of at least $300 million between 2016 and 2017. This is expected to be achieved through organic cash flow generation and other available means, including the monetization of secondary metals and assets.

The company expects Net Debt/EBITDA to be between 1.5 and 2 times, which management believes to be prudent financial policy and planning. It expects the Net Debt/EBITDA ratio to improve starting this year. The company expects to achieve its target through organic cash flow generation at current gold prices.

For 2016, the company expects gold production in the range of 1.23–1.31 million ounces. Silver production is expected in the band of 6.9 million and 7.2 million ounces, and copper production is projected at between 122 million and 125 million pounds.

Earnings Whispers

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

Zacks ESP: The Earnings ESP for Yamana is 0.00% – as both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at breakeven.

Zacks Rank: Yamana holds a Zacks Rank #2, which increases the predictive power of ESP. However, the company’s ESP of 0.00% makes surprise prediction difficult.

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 they have the right combination of elements to post an earnings beat this quarter:

Agnico Eagle Mines Limited AEM has an Earnings ESP of +66.67% and a Zacks Rank #3.

Albemarle Corporation ALB has an Earnings ESP of +1.18% and a Zacks Rank #3.

Orion Engineered Carbons SA OEC has an Earnings ESP of +13.79% and a Zacks Rank #3.

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ALBEMARLE CORP (ALB): Free Stock Analysis Report
 
ORION ENGINRD (OEC): Free Stock Analysis Report
 
AGNICO EAGLE (AEM): Free Stock Analysis Report
 
YAMANA GOLD INC (AUY): Free Stock Analysis Report
 
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