Wheaton (WPM) Shares Up 50% YTD: What's Driving the Rally?

Shares of Wheaton Precious Metals Corp. WPM have rallied 50%, year to date, compared with the industry’s growth of 7.1%, while the S&P 500 has gained 10.4%.  Higher gold prices, stellar third-quarter 2020 results and expected benefits from mine exploration and expansion activities have contributed to this rally.

Wheaton has a market cap of $19.8 billion. The company has an expected long-term earnings per share growth rate of 5%.

The company recently reported third-quarter 2020 adjusted earnings of 34 cents per share, in line with the Zacks Consensus Estimate. Remarkably, the bottom-line figure surged 113% year over year. Revenues of $307 million surpassed the Zacks Consensus Estimate of $304 million and increased 37% year over year as well.

Let’s delve deeper and analyze the factors driving the stock.

Driving Factors

Wheaton’s mine production during the September-end quarter strongly rebounded following the pandemic-induced temporary suspensions of some operations in the second quarter. The company expects mining operations to continue throughout the remainder of the year without any major interruptions. Its long-term production forecast remains unchanged at 750,000 GEOs per year on average between 2020 and 2024.

Wheaton will benefit from mine exploration and expansion activities by their operators. Last year October, Vale S.A VALE invested in the Salobo III mine expansion, wherein 62% expansion was complete at the end of third-quarter 2020. The Salobo expansion is scheduled to commence in the first half of 2022. This will enhance the mine’s throughput capacity to 36 million ton per annum (Mtpa) from the current level of 24 Mtpa. In the Stillwater mine, Sibanye-Stillwater conducted review of the Blitz project following the suspension of growth capital activities due to the pandemic, and the project is now expected to reach a steady state by 2024. Moreover, its Fill the Mill project at the East Boulder mine is right on schedule to be concluded by the end of this year. These expansion projects are expected to be growth drivers in the coming years.

Wheaton is focused on boosting its production capacity from high-quality accretive metals. It remains active on the corporate development front and focused on growing high-quality portfolio of assets. On Nov 5, Wheaton entered into a previously-announced precious metals purchase agreement with Caldas Gold Corp. to acquire 6.5% of the gold production and 100% of the silver production from the Marmato Project located in Colombia. On Sep 15, Alexco Resource Corp stated that completion of mining operations in the Keno Hill Silver District, is scheduled for the current quarter. Wheaton is entitled to 25% of the payable silver production from Keno Hill.

The company generates its revenues primarily from the sale of gold, silver and palladium. Gold prices have been up 22.8% so far this year, fueled by the coronavirus pandemic and rate cuts. The combination of lower mined gold supply and higher demand, and geopolitical tensions are likely to drive prices north. This bodes well for Wheaton. Silver prices have also flared up 36%, year to date, on the back of recovery in industrial activity as governments continue relaxing the restrictions. Given the bullish precious metal markets and high-quality portfolio of assets, Wheaton is focused on creating sustainable value for shareholders.

Furthermore, Wheaton's solid cash position, sales volume, revenues and strong operating cash flows combined with available credit capacity, helped the company increase its dividend by 20% to 12 cents per share for the ongoing quarter. These also provide flexibilities to acquire additional accretive precious metals. Apart from this, Wheaton’s recent listing on the London Stock Exchange will provide scope for international investors to invest in the company. Moreover, the company’s efforts to reduce its debt levels are encouraging.

Positive Growth Projections

The Zacks Consensus Estimate for Wheaton’s 2020 earnings is currently pegged at $1.16, indicating a year-over-year surge of 107.1%. The same for 2021 earnings is pinned at $1.64 per share, suggesting year-over-year growth of 41.9%.

Zacks Rank & Stocks to Consider

Wheaton currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials space are Agnico Eagle Mines Limited AEM and Newmont Corporation NEM. Both the stocks flaunt a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Agnico Eagle Mines Limited has an expected earnings growth rate of a whopping 103% for the current year. The company’s shares have rallied 38% over the past year.

Newmont has a projected earnings growth rate of 98% for 2020. The stock has gained 72% in a year’s time.

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