Why did these brokers upgrade the Evolution Mining share price to buy?

The investment debate on ASX gold shares continues.

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Key points

  • Despite a recent pullback in its share price and the price of gold struggling in 2022, brokers are still turning constructive on Evolution Mining
  • Not all are bullish however, as many are still happy waiting on the sidelines for now
  • In the last 12 months the Evolution Mining share price has slipped more than 29% into the red

Shares of Evolution Mining Ltd (ASX: EVN) have jumped from the open and now trade around 1% higher at $3.73 apiece.

Zooming out for a wider view, however, Evolution has struggled in 2022 having clipped an 8% loss this year to date. Over the last month of trade, shares are down 8% as well.

Meanwhile, the price of gold has also taken a backward step this past month, dipping almost 1% into the red to bring a year-on-year loss of more than 3%.

Broker upgrades for Evolution Mining

Analysts at JP Morgan upgraded their rating on Evolution Mining in a recent note, bringing their rating to overweight.

“We remain attracted to gold stocks on a 1y view and believe the recent pullback in stock prices provides a good entry point amongst a supportive macro backdrop,” the broker said in a recent note.

The broker is attracted to the company’s Cowal, Red Lake and Ernest Henry assets and also mentioned that Evolution had a good track record on its acquisition front.

We upgrade Evolution to overweight, and it is now our top pick from a valuation perspective, trading on a P/NPV of 0.77x and offering a 10% 5 year CAGR [compound annual growth rate] in production and a 3.2% FY23 estimated dividend yield.

JP Morgan values Evolution Mining at $4.80 per share, in line with Shaw and Partners on a $4.75 per share valuation.

Meanwhile, analysts Yi Zhu and Anthony Cham Fung Yau at Bloomberg Intelligence reckon Evolution’s $1.4 billion capital expenditure (capex) should be accretive to the company’s earnings. They wrote:

Evolution’s A$1.4 billion capex should improve productivity at its recently-acquired assets, lifting production by 320,000 ounces at lower unit costs.

Investments include brownfield exploration, new mine plans and extraction of synergies. This strategy has previously served the company well and we expect similar results with the most recent additions.

Not all recommend a buy

While 25% of coverage advocates buying Evolution Mining shares, around 44% of brokers still say the company is a hold, and 31% recommend investors sell, according to Bloomberg data.

Both Credit Suisse and Macquarie downgraded their ratings to underperform yesterday, valuing the company at $3.75 and $4 per share respectively.

RBC Capital and Barrenjoey Markets also rate Evolution a sell in separate notes from April.

The consensus price target is still $4.34 per share from this list, suggesting around 16% upside potential at the time of writing.

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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