Agnico Eagle Mines Limited’s AEM shares have popped 36.5% in the past six months, outperforming the Zacks Mining – Gold industry’s rise of 12.5%. The rally has been fueled by AEM’s forecast-topping earnings performance, riding on higher realized gold prices and strong production.
Technical indicators show that AEM has been trading above the 200-day simple moving average (SMA) since March 4, 2024. The stock is also currently trading above the 50-day SMA. The 50-day SMA continues to read higher than the 200-day SMA since the golden crossover on Jan. 1, 2024, indicating a bullish trend.
Agnico Eagle’s Shares Trade Above 50-Day SMA
Image Source: Zacks Investment Research
Let’s take a look at AEM’s fundamentals to better analyze how to play the stock.
Advancement of Key Projects to Incite AEM’s Growth
Agnico Eagle is focused on executing projects that are expected to provide additional growth in production and cash flows. It is advancing its key value drivers and pipeline projects, including the Odyssey project in the Canadian Malartic Complex, Detour Lake, Hope Bay and San Nicolas. At the Kittila mine — the largest primary gold producer in Europe — the company continues to expand the exploration drilling of Main and Sisar Zones to take advantage of better grades.
The Hope Bay Project, with proven and probable mineral reserves of 3.4 million ounces, is expected to play a significant role in generating cash flow in the coming years. The Meliadine phase 2 mill expansion project was completed in the second quarter of 2024, with mill capacity set to increase to 6,000 tons per day by the end of 2024.
The merger with Kirkland Lake Gold established Agnico Eagle as the industry's highest-quality senior gold producer. The integrated entity now has an extensive pipeline of development and exploration projects to drive sustainable growth and the financial flexibility to fund a strong pipeline of growth projects.
AEM’s Solid Financial Health Supports Capital Allocation
AEM has a strong liquidity position and generates substantial cash flows, which allow it to maintain a strong exploration budget, finance a strong pipeline of growth projects, pay down debt and drive shareholder value. During the first quarter of 2024, Agnico Eagle upsized its revolving credit facility to $2 billion, significantly increasing its available liquidity. Its operating cash flow jumped roughly 116% year over year to record $1,084.5 million in the third quarter. AEM also generated solid third-quarter free cash flows of $620.4 million, backed by the strength in gold prices and strong operational results. It remains focused on paying down debt using excess cash, with net debt reducing by $429.7 million sequentially to $490 million at the end of the third quarter.
Higher gold prices should boost AEM’s profitability and drive cash flow generation. Gold has been among the best-performing assets this year. Gold prices have rallied roughly 32% this year, driven by strong demand from central banks, a dovish Fed interest rate outlook, global uncertainties and a surge in safe-haven demand thanks to increased tensions in the Middle East. After the pullback due to a rally in the U.S. dollar following Trump's win in the U.S. Presidential election, gold prices regained strength as the Federal Reserve cut interest rates by a quarter point. Gold prices are seeing an uptrend lately following a momentary pullback, climbing above $2,700 per ounce on prospects of another rate cut in December.
AEM offers a dividend yield of 1.9% at the current stock price. It has a five-year annualized dividend growth rate of 16.8%. AEM has a payout ratio of 45% (a ratio below 60% is a good indicator that the dividend will be sustainable). The company's dividend is perceived to be safe and reliable, backed by strong cash flows and sound financial health.
Higher Costs Weigh on Agnico Eagle Stock
Agnico Eagle, like most miners, is plagued by higher production costs. In the third quarter of 2024, its total cash costs per ounce of gold were up roughly 3% from the previous year. All-in-sustaining costs (AISC) — the most important cost metric of miners — also rose roughly 6% year over year. While AEM is taking actions to control costs, the inflationary pressure is likely to continue over the near term, weighing on its profit margins and overall financial performance. Higher sustaining capital expenditures and cash costs are expected to contribute to increased AISC.
AEM’s Rising Earnings Estimates Instill Optimism
The Zacks Consensus Estimate for AEM’s 2024 earnings has been going up over the past 60 days. The consensus estimate for fourth-quarter 2024 earnings has also been revised upward over the same time frame.
The Zacks Consensus Estimate for earnings for 2024 is currently pegged at $4.07, suggesting year-over-year growth of 82.5%. Earnings are expected to register roughly 101.8% growth in the fourth quarter.
Find the latest earnings estimates and surprises on Zacks Earnings Calendar.
Image Source: Zacks Investment Research
Agnico Eagle Stock’s Valuation Looks Reasonable
Agnico Eagle is currently trading at a forward 12-month earnings multiple of 18.81X, a roughly 46.3% premium to the peer group average of 12.86X. The valuation looks reasonable, considering the company’s strong earnings trajectory.
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AEM Stock Outperforms Industry & S&P 500
AEM's shares have performed impressively on the bourses thanks to the rally in gold prices and solid earnings performance. Its shares have rallied 63.1% over the past year, topping the industry’s 24.6% rise and the S&P 500’s increase of 29.2%. Its gold mining peers, Barrick Gold Corporation GOLD, Newmont Corporation NEM and Kinross Gold Corporation KGC have gained 1.1%, 5.7% and 76.3%, respectively, over the same period.
AEM’s One-year Price Performance
Image Source: Zacks Investment Research
How Should Investors Play the AEM Stock?
With a strong pipeline of growth projects, solid financial health and bullish technicals, AEM presents a compelling investment case for those seeking exposure to the gold mining space. A healthy growth trajectory and an attractive dividend yield are other positives. A favorable gold pricing environment also augurs well. Despite the upbeat growth prospects, its high production costs warrant caution. Balancing these factors, retaining this Zacks Rank #3 (Hold) stock would be prudent for investors who already own it.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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