5 Reasons Agnico Eagle Mines Remains A Buy

seekingalpha07-21

Agnico Eagle Mines has seen a 20% price increase in the past quarter, but its uptick appears hardly over yet.Besides benefiting from rising gold prices, the company's production levels are healthy, ...

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There's also a possibility of higher dividends moving forward.   Anthony Bradshaw Since I last wrote about the gold miner Agnico Eagle Mines (NYSE:AEM) in April, it's up by almost 20%. With gold prices on the up and up, this is hardly surprising. But to give the company its due credit, its own fundamentals are strong too, along with the stock’s attributes. Five of these factors are discussed below, which make a case for why AEM stock is still a buy. #1. Gold shines There’s no denying that gold has underperformed key US-stock indices in the past 10 years. The SPDR Gold Shares ETF (GLD), which tracks gold bullion price, is up by 76% over this time, while the S&P 500 (SP500) tracker, SPDR S&P 500 ETF Trust (SPY), is up by 180% and the NASDAQ-100 (NDX) tracker, Invesco QQQ Trust ETF (QQQ) is up by 400%. However, by contrast, GLD’s performance year-to-date [YTD] compares nicely with the stock indices (see chart below). In a time of macroeconomic uncertainty, especially with economic growth in the US slowing down, an uptick in gold prices to be expected. What's more surprising is the continued upswing in the stock market indices. My own analysis on both SPY and QQQ show that there’s potential for weakness in stock markets going further into the year.   Price Returns: GLD, SPY and QQQ (Source: Seeking Alpha) This, in turn, means that gold could see an even bigger uptick going forward as a safe-haven investment. Forecasters certainly think so. According to JPMorgan, gold price is expected to grow by another 4% by the final quarter of 2024 (Q4 2024) from the current levels after already seeing almost 21% increase in the past six months. Further, from the present levels, it’s expected to see an 8% increase by the end of 2025. Admittedly, this indicates a decelerated price rise, but the upward momentum is still expected to continue. #2. Production at upper end, superior revenue growth While AEM benefits from higher gold prices, its own production levels are healthy too. Its production numbers in the first quarter of 2024 (Q1 2024) came in at the upper end of the guidance range, at 0.88 million ounces (Moz) (see table below). For the full year 2024, the company expects to produce 3.35-3.55 Moz for the full year 2024, which translates into 0.84-0.88 Moz per quarter, assuming that the production is divided equally across the quarters. This, along with an ~9% year-on-year (YoY) increase in realised gold price, resulted in a significant 21% YoY revenue increase. I say significant because it’s higher than the 13.9% YoY increase in Q1 2023, a 15.4% rise for the full year 2023 and my estimate of a 7% YoY increase for the full year 2024.   Production Guidance and Q1 2024 Actuals (Source: Agnico Eagle Mines) #3. Upgraded financial projections This alone is one reason for an upgrade in the full year revenue projections. But the robust trends in gold prices also indicate the same. If the metal's price increases to JPMorgan’s projected figure of USD 2,425/oz by the end of Q3 2024 and USD 2,500/oz by the end of Q4 2024, the average gold price for the year would be USD 2,367/oz. This isn't a perfect average, since only quarter end figures are considered, but it is indicative. Much like last time, if the ratio of realised gold price to actual price remains at 2023’s level of 94% and AEM’s production remains in at the upper end of the guidance range for the full year, the revenue growth for 2024 rises to 14.1%. This is double the growth envisaged a quarter ago. Also, assuming that the adjusted net margin continues to stay at 16.5%, like in 2023, the adjusted earnings per share [EPS] rise to USD 2.5, up from USD 2.4 as per the previous estimate and representing an expected 12% YoY increase. However, it’s worth noting that the company’s adjusted net margin was at a higher 20.7% in Q1 2024. If this were to sustain for the full year 2024, the EPS for the year would rise to USD 3.13, a 40% YoY increase. #4. Supportive P/E With the first estimate, the stock’s forward non-GAAP price-to-earnings (P/E) ratio comes to 29.7x, which is just slightly below the five-year average of 29.8x and is higher than the 25.7x it was at the last I checked. This indicates that the stock is fairly priced. However, with the second estimate, the ratio drops to 23.6x, which indicates that there's still a 27% upside to the stock. There’s more. Analysts’ estimates on Seeking Alpha put the EPS estimate at an even higher at USD 3.54, which results in a forward P/E of 20.9x. Even AEM’s trailing twelve months [TTM] non-GAAP P/E at 30.7x is also far lower than the five-year average of 39.4x. The key takeaway here is that it can be safely assumed that there’s far more upside to the stock even now. #5. Dividend growth possible The company has kept its dividend levels unchanged from 2023 at USD 0.4 per share in Q1 2024, but there’s hope that it could rise, for two reasons. One, in the latest quarter, the ratio was at 52.6%, where the non-GAAP earnings are considered in the denominator. This is significantly lower than the 71.4% level seen for 2023. Two, AEM has shown a very healthy compounded annual growth rate [CAGR] of 27.7% for dividends over the past five years. And it hasn’t raised its dividends since 2022 now, indicating that it might just do so now with its earnings uptick. AEM’s TTM dividend yield is underwhelming, though, at 2.16%, down from 2.6% the last I checked because of its price increase of the past quarter. However, even here, among the five biggest gold mining stocks by market capitalisation, it’s still very well placed. Only Barrick Gold Corporation (GOLD) has a higher yield, and that too is just slightly higher at 2.18%. In any case, the possibility of dividend growth, the positive EPS forecast and the company’s 40-year record of paying dividends each year, it’s still attractive as a dividend stock. What next? The writing is on the wall here. AEM remains a firm Buy, despite its robust price rise over the past quarter. The outlook for gold is positive, the company’s production levels are healthy, the revenue growth in Q1 2024 surpassed expectations, the net margin improved, the financial forecast called for an upgrade and the market multiples still look more attractive than not.  Its dividend yield is underwhelming, though. But it makes up for that with consistency and the possibility for a dividend increase. I would like to say here that right now, the rating is for only until the end of 2024. Gold is heavily influenced by where the macroeconomic cycle is at. And as that starts improving at an accelerated rate, gold price can weaken. Only, that time isn’t now.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.0","shortVersion":"4.29.0","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2453278842"}