AEM Stock Study (9-25-23)

Posted by Mark on November 11, 2023 at 06:30 | Last modified: September 25, 2023 13:07

I recently did a stock study on Agnico Eagle Mines Ltd. (AEM) with a closing price of $49.05. The original study is here.

M* writes:

     > Agnico Eagle is a gold miner with mines in Canada, Mexico, Finland,
     > and Australia. Agnico operated just one mine, LaRonde, as recently
     > as 2008 before bringing its other mines online in rapid succession
     > in the following years. It merged with Kirkland Lake Gold in 2022,
     > acquiring the Detour Lake and Macassa mines in Canada along with
     > the high-grade, low-cost Fosterville mine in Australia. It produced
     > more than 3.1 million gold ounces in 2022 and had about 15 years
     > of gold reserves at end 2022. Agnico Eagle is focused on increasing
     > gold production in lower-risk jurisdictions and bought the
     > remaining 50% of its Canadian Malartic mine along with the
     > Wasamac project and other assets from Yamana Gold in 2023.

Over the past decade, this medium-size company has grown sales at an annualized rate of 12.2%. EPS has grown at an annualized rate of 16.9% since 2016 (’14 and ’15 excluded due to low fractional EPS that would artificially inflate growth rate; ’13 and ’18 excluded due to negative EPS resulting from nonrecurrent events). PTPM lags industry averages despite trending up in recent years with a last-5-year mean of 17.1%.

Also over the past decade, ROE is roughly equal to industry averages despite trending down in recent years with a last-5-year mean of 5.2%. Debt-to-Capital is lower than industry averages and recently trending down with a last-5-year mean of 21.5%.

Interest Coverage is over 38 and Quick Ratio is 0.61. M* gives a “Standard” rating for Capital Allocation and Value Line gives a B+ rating for Financial Strength.

With regard to sales growth:

• CNN Business projects 14.0% YOY and 8.4% per year for ’23 and ’22-’24 (based on 16 analysts).
• YF projects YOY 15.1% and 3.5% for ’23 and ’24, respectively (16 analysts).
• Zacks projects YOY 14.0% growth and 0.1% contraction for ’23 and ’24, respectively (4).
• Value Line projects 11.6% annualized growth from ’22-’27.
• CFRA projects growth of 15.4% YOY and 8.3% per year for ’23 and ’22-’24, respectively.
• M* gives a 2-year ACE of 27.0% annualized growth.

I am forecasting toward the lower end of the range at 6.0% per year.

With regard to EPS growth:

• CNN Business projects contraction of 8.9% YOY and 1.7% per year for ’23 and ’22-’24, respectively (based on 16 analysts), along with 5-year annualized contraction of 3.5%.
• MarketWatch projects 3.3% annualized growth and 2.8% annualized contraction for ’22-’24 and ’22-’25 (19 analysts).
• Nasdaq.com projects 3.7% annualized growth and 4.9% annualized contraction for ’23-’25 and ’23-’26 [6, 3, and 1 analyst(s) for ’23, ’25, and ’26].
• YF projects YOY 4.8% contraction and 7.3% growth for ’23 and ’24, respectively (16), along with 5-year annualized contraction of 0.7%.
• Zacks projects YOY 3.0% contraction and 9.4% growth for ’23 and ’24, respectively (6), along with 5-year annualized growth of 1.0%.
• Value Line projects 18.1% annualized growth from ’22-’27.
• CFRA projects contraction of 7.0% YOY and 4.2% per year for ’23 and ’22-’24 along with a 3-year CAGR of 1.0%.

I am forecasting flat growth—toward the bottom of the long-term-estimate range (mean of four: 3.7%). For high EPS, I will use 2023 Q1 EPS of $5.14 (annualized). For low EPS, I am choosing to bypass ’22 EPS of $1.53/share because it seems curiously low [Value Line and CFRA’s normalized EPS reflect less than a 10% YOY decrease for ’22 versus M*’s GAAP reporting of a 31% YOY decrease]. Instead, I will use ’21 EPS of $2.22/share (arbitrary).

My Forecast High P/E is 24.0. Over the past decade, high P/E ranges from 32.6 in ’19 to 317 in ’15. The last-5-year mean high P/E is 38.4 and the last-5-year-mean average P/E is 29.1. I am forecasting below the range.

My Forecast Low P/E is 14.0. Over the past decade, low P/E ranges from 14.8 in ’20 to 191 in ’15 with a last-5-year mean of 19.8. I am forecasting below the range.

My Low Stock Price Forecast (LSPF) of $31.10 is default based on $2.22/share. This is 36.6% less than the previous closing price and 15.3% less than the 52-week low.

These inputs land AEM in the BUY zone with a U/D ratio of 4.1. Total Annualized Return (TAR) is 21.4%.

Over the past decade, Payout Ratio has ranged from 27.6% in ’19 to 291% in ’15 with a last-5-year mean of 60.1% (’22 is 105%). I am forecasting below the entire range at 27.0%.

PAR (using Forecast Average—not High—P/E) is 16.2%, which is among the highest ever seen in one of my stock studies.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 68 studies over the past 90 days (29 outliers and my study excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 11.5%, 10.0%, 29.7, 16.9, and 43.7%, respectively. I am lower across the board. Value Line projects an average annual P/E of 20.0, which is lower than MS (23.5) and higher than mine (19.0).

MS high / low EPS are $6.13 / $2.24 versus my $5.14 / $2.22 (per share). Value Line’s high EPS is $5.20. Mine is lowest of the three due to a lower growth rate.

MS LSPF of $36.90 implies a Forecast Low P/E of 16.5, which is less than the above-stated 16.9. MS LSPF is 2.5% less than the default $2.24/share * 16.9 = $37.86, which results in more conservative zoning. MS LSPF is still 18.7% greater than mine.

My TAR (over 15.0% preferred) is much less than the 30.2% from MS. MOS seems robust in the current study.

I track a few different valuation metrics. With long-term growth rates of 1.0% and 0% from Zacks and me, PEG doesn’t make much sense (22.0 and indeterminate, respectively). Relative Value [(current P/E) / 5-year-mean average P/E] per M* seems excessively cheap at 0.33 (perhaps so low because 2023 EPS is up 200% YOY for Q1 and Q2 causing current P/E to nosedive). Kim Butcher’s “quick and dirty DCF” prices the stock at 11.0 * [$8.70 – ($2.40 + $3.10)] = $35.20, which suggests the stock to be 28.2% overvalued. These are conflicting (and confusing as to why that is).

AEM is a BUY at the current price. If I want to be even more cautious, then maybe I knock 5-10% off the max buy price to account for uncertainty related to my selection of high and low EPS.

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