Goldcorp: Shares Could Selloff On U.S. Rate Hike

Mar. 7, 2015 11:33 AM ET | About: Goldcorp Inc. (GG)

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)

Summary

• Goldcorp missed revenue and earnings expectations largely because of falling gold prices and hefty impairment charges.
• Recent jobs and unemployment rate reports raise speculation about the US Fed hiking interest rates by mid-year.
• Rate hikes could prompt big selloffs in the gold market and gold stocks, including Goldcorp.
• Cash flows and margins are imperative to financial growth in a low gold price environment.

Canadian gold producer Goldcorp (NYSE:GG) released fourth-quarter earnings results that fell short of expectations on both the top and bottom lines. Low gold prices have tightened financial growth at gold names over the past couple of years. Economists forecast the US Fed to raise rates in June, which could prompt further short selling pressure in bullion.

Goldcorp expects to deliver free cash flow (FCF) during the year at $1,200/oz. gold, with rising production and big cuts in capital spending. These results are highly reliant on how gold performs over the next 10 months. Gold outflows will persist if the US Fed raises rates, thus decreasing the likelihood of FCF creation. Gold was priced at $1,165/oz. at the time of this writing.

We may see new lows in GC shares. Hope the new Probe is worth the wait.

Rosehill