On today’s TSX Breakouts report, there are 49 stocks on the positive breakouts list (stocks with positive price momentum), and 25 securities are on the negative breakouts list (stocks with negative price momentum).
There are a number of gold and silver stocks that are gaining positive price momentum, comprising almost one-third of the stocks on the positive breakouts list. Discussed today is a gold stock that is on the positive breakouts list - Wheaton Precious Metals Corp. (WPM-T). This stock provides investors with leverage to rising commodity prices and also offers investors a dividend yield of 1.7 per cent.
A brief outline on Wheaton is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
The company
Wheaton Precious Metals is a streaming company. It purchases the right to receive production from companies without having to incur exploration or production costs.
As of Sept. 30, the company had 30 long-term gold, silver, palladium and cobalt streaming agreements with 22 mining companies including Vale S.A. (VALE-N), Newmont Corp. (NEM-N), Barrick Gold Corp. (ABX-T) and Eldorado Gold Corp. (ELD-T).
In terms of its commodity exposures, 49 per cent of the company’s third-quarter revenue was from gold, 46 per cent from silver, 4 per cent from palladium and 1 per cent from cobalt.
The stock trades on the Toronto Stock Exchange, New York Stock Exchange and the London Stock Exchange under the same ticker, WPM.
Investment thesis
- Gold and silver exposure without direct production and development costs.
- Production growth. Management anticipates annual production to average 850,000 gold equivalent ounces (GEOs) between 2022 and 2026, up from management’s target of between 640,000 and 680,000 GEOs in 2022.
- Management seeks to secure additional precious metals purchase agreements.
- Diversified cash flow. Partnerships with established producers through 30 long-term streaming agreements.
- Diversified geographical exposure. Management’s geographic revenue breakdown guidance (between 2022 and 2026): 26 per cent from Brazil, 25 per cent from Mexico, 19 per cent Peru, 15 per cent Canada, 8 per cent U.S., 6 per cent Europe, 1 per cent from Colombia and 1 per cent from Equador.
- Strong balance sheet. US$495-million of cash and no debt as at Sept. 30.
- Reliable dividend. Quarterly dividend was maintained throughout the COVID pandemic.
Quarterly earnings and outlook
After the market closed on Nov. 3, the company reported its third-quarter financial results.
Wheaton produced 159,900 GEOs, down 13 per cent year-over-year. Revenue came in at US$218-million, down 19 per cent year-over-year with 12 per cent attributed to lower commodity prices and 7 per cent due to a decline in sales volumes. Adjusted earnings per share came in at 21 US cents. Cash flow per share was 34 US cents, a penny below the consensus estimate. The following day, the share price increased 10 per cent on high volume.
On the earnings call, president and chief executive officer Randy Smallwood summarized the company’s position stating, “We believe Wheaton is well positioned to continue delivering value to all of our stakeholders for a number of different reasons. Firstly, by having low and predictable costs which, when coupled with leverage [to] increases in commodity prices, result in some of the highest margins in the entire precious metals space. Secondly, by offering our shareholders exposure to our diversified portfolio of long-life, low-cost assets and the strong organic growth embedded within it. Thirdly, by returning value to shareholders through our unique cash flow-linked dividend policy. And lastly, by being a leader amongst precious metal streamers in sustainability and by supporting our partners and the communities in which we live and operate.”
Dividend policy
The company pays its shareholders a quarterly dividend of 15 US cents per share or 60 US cents per share yearly. This equates to a current annualized dividend yield of 1.7 per cent.
Analysts’ recommendations
According to Bloomberg, the stock has 14 buy-equivalent recommendations and two neutral recommendations.
The 16 firms are: ARC Independent Research, Barclays, Berenberg, BMO Nesbitt Burns, Canaccord Genuity, CIBC World Markets, Credit Suisse, Desjardins Securities, Edison Investment Research, Eight Capital, National Bank Financial, Raymond James, RBC Dominion Securities, Scotiabank, Stifel Canada and TD Securities.
Revised recommendations
Thus far in November, two analysts have revised their expectations.
- BMO’s Jackie Przbylowski raised her target price to US$52 from US$49.
- TD’s Greg Barnes trimmed his target price to US$46 from US$47.
Financial forecasts
The Street is anticipating earnings per share of US$1.15 in 2022 and US$1.18 the following year. The consensus cash flow per share estimates are U.S$1.69 in 2022 and US$1.80 in 2023.
Valuation
Analysts commonly value the stock on a price-to-net asset value and price-to-cash flow basis. According to Bloomberg, the stock is currently trading at a price-to-cash flow multiple of 19.9 times the 2023 consensus estimate, just above the five-year average multiple of 18.4 times.
Analysts’ target prices are typically expressed in U.S. dollars, upon conversion, the average one-year target price is approximately $66.10, implying the share price has over 37-per-cent upside potential over the next 12 months.
Insider Transaction Activity
Quarter-to-date, there has not been any trading activity in the public market reported by insiders.
Chart watch
Quarter-to-date, the stock price is up 7 per cent, underperforming other gold stocks. Wheaton is the 27th best performing stock in the S&P/TSX materials (sector) index out of 51 securities.
Year-to-date, the share price is down 11 per cent.
Looking at key technical resistance and support levels, the share price is approaching initial resistance around $50, near its 200-day moving average (at $50.25). If the share price can break above this level, the next ceiling of resistance is around $60. Looking at the downside, there is strong technical support level around $40.
ESG Risk Rating
According to risk provider Sustainalytics, Wheaton has an environmental, social and governance (ESG) risk score of risk score of 7.2 as of October 2, 2022. A risk score of between 0 and 10 reflects a “negligible risk” rating.
The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.
This report is not an investment recommendation.
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