Valuentum Exclusive Analysis for the Discerning Investor

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By Brian Nelson, CFA

Newmont’s Costs Balloon in the Wake of Higher Gold Prices, Roughly Flat Production Expected in 2025

Newmont (NEM) reported lower than expected third quarter results October 23, with revenue and non-GAAP earnings per share missing the consensus forecast. Revenue advanced 84.7% in the quarter, while non-GAAP earnings per share came in at $0.81. We liked the revenue growth in the quarter, propelled by an average realized gold price of $2,518, but all-in sustaining costs (per ounce) also increased to $1,611, up materially from $1,426 recorded in the same period a year ago. Newmont, nonetheless, generated operating cash flow of $1.64 billion and free cash flow of $760 million in the quarter, up materially from the third quarter of last year.

Looking to the fourth quarter, Newmont is expected to deliver attributable production of 1.8 million gold ounces (up from 1.74 million in the fourth quarter of last year), at an all-in sustaining cost of $1,475 per ounce, modestly lower than the $1,485 of the year-ago period. Looking to 2025, the firm expects “gold production from (its) go forward Tier 1 portfolio to remain consistent with (2024), driven by lower than previously expected production from two of (its) new operations in Lahir and Brucejack.” On the report, Newmont’s shares fell by double-digits, but we think the sell-off is overblown. We expect a modest downward revision to our fair value estimate of $57 per share upon the next update. Newmont is no longer included in any newsletter portfolio.

McDonald’s Hit by E. Coli Outbreak; No Long-term Impact to Brand, In Our View

McDonald’s (MCD) has been doing a better job of late connecting with the lower-income consumer, rolling out its $5 Meal Deal. Unfortunately progress in this area was trumped by a recent warning issued by the Centers for Disease Control about an E. coli outbreak in Colorado and Nebraska that was linked to slivered onions in its Quarter Pounder (sourced by a single supplier serving three distribution centers). The CDC has reported that the outbreak affected dozens of people across 10 states, with one death and 10 hospitalizations.

McDonald’s has worked fast to contain the issue, and after temporarily removing the Quarter Pounder from restaurants in the impacted areas, is bringing back the Quarter Pounder to all restaurants in the coming weeks. Management noted that it is confident “the issue appears to be contained to a particular ingredient (slivered onions used solely in the Quarter Pounder) and geography, and it remain(s) very confident that any contaminated product related to this outbreak has been removed from (its) supply chain and is out of all McDonald’s restaurants.”

Though demand may be impacted in the near term as consumers may opt to avoid McDonald’s until the issue is far into the rear-view mirror, we don’t think the outbreak will be damaging to McDonald’s brand, and we expect no impact on McDonald’s from the outbreak in the longer run. Our fair value estimate of McDonald’s stands at $281 per share, with no change expected.

We Have a Net-Neutral Take on the Coming U.S. Presidential Election

The U.S. Presidential election is fast-approaching, and all eyes will be on developments during Election Day, November 5. First, former President Donald Trump and Vice President Kamala Harris have varying views on the future trajectory of corporate taxes. The 2017 Tax Cuts and Jobs Act permanently lowered the top corporate tax rate to 21% from 35%. Trump wants to further lower the corporate tax rate to 15% for certain companies, while Harris is proposing to increase the corporate tax rate to 28% from 21%.

Trump is also targeting other tax breaks, including eliminating federal taxes on tips, Social Security benefits and overtime pay. Trump’s plan for tips also includes eliminating payroll taxes on them, unlike Harris’ plan, which targets eliminating federal taxes on tips but not payroll taxes. Trump has said that in his second administration, he will impose an across-the-board tariff of either 10% or 20% on every import coming into the U.S., as well as a tariff upward of 60% on all Chinese imports.

Both candidates have inflation on their minds, with Harris wanting to implement a national price-gouging ban on food and groceries, while Trump has promised to reduce prices of gas and groceries, the former by reducing regulations on the oil and gas industry to boost production. Trump’s plan also includes temporarily capping credit card interest rates at ~10%, while making interest paid on car loans fully tax deductible. Harris plans to raise the capital gains tax to 28%, up from 20% currently, for those with incomes greater than $1 million. 

Though there are differences between Trump’s and Harris’ proposals on the economy, nearly all of the items on their respective lists would require congressional approval, which is not guaranteed. According to a report from the Committee for a Responsible Federal Budget, Harris’ plans would boost the national debt by $3.5 trillion over the next decade, while Trump’s plans would drive it $7.5 trillion higher--and 23 U.S. Nobel laureates wrote a recent letter in favor of Harris’ plans. We’re net neutral on the political risks of the coming election, and we don’t expect to make any changes to the newsletter portfolios as a result of election uncertainty.

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