GMX upgrades Jaguar Mining to Strong Buy (JAG)
August 11, 2008
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RELATED TICKERS: JAG
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I am officially upgrading the Concord, NH based Jaguar Mining company to Strong Buy on the strength of today's earnings announcement. The company made 9 cents per diluted share vs. a loss last year and a mere 1 penny per share last quarter. The company has ramped up production and is opening another mine later this year. Based on this strength, I see revenue continuing to grow sharply for the next few years. The company will mine somewhere in the range of 150,000 oz of gold this year-- they are moving towards an eventual goal of 700,000 oz a year. I trust management to complete this goal seeing as how the competent management has driven this stock price from under a dollar to $14 before falling back (check out the chart of Jag.to--the Canadian listing--the American listing showed up much later.)
As revenue rose 86% this quarter vs. last year, we can see the company is continuing growth at a tremendous pace. The stock has gotten battered due to the selloff in precious metals and a recent report that a problem at one of JAG's mines would slightly slow production. However, even if revenue growth slows to 60% a year or so this is still sufficiently fast to promote more value creation at JAG. If earnings remain at 9 cents a share for the next three quarters, we get full-year earnings of 36 cents, leading to a P/E in the high-teens. This is below industry average significantly. However, earnings are growing sharply. I project 21 cents of earnings for the upcoming quarter and I believe a forward P/E of around 10 is accurate.
One note of caution, as the USD continues to rally, the value of American shares of JAG will rise more slowly than Canadian shares of JAG (JAG.to). As the exchange rate rises, the Canadian shares will necessarily rise more quickly. No problem though, with a 1-year price target of $14 CAD for JAG, this translates to $12.60 per American share assuming a USD/CAD ratio of 1.1. Assuming the stock opens below $7 tomorrow (you can hope--it may gap much higher on tonight's positive news) a 60 to 80% gain is possible by buying JAG shares.
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