Silver Wheaton: Buy This Stock

Silver Wheaton (SLW) announced third quarter ended September 30, 2015 total revenue of $153 million, depicting an 8 percent year-over-year decline compared to the same period last year. Silver Wheaton declared third quarter of 2015 adjusted net earnings of $50 million or $0.12 of basic earnings per share, compared to $73 million or $0.20 of basic earnings per share in the third quarter of 2014.

Growth ahead

The global precious metals streaming company reported continued year-over-year decline in both its top and bottom lines primarily due to the ongoing weaker global commodity demand and pricing environment, hurting the company’s key margins.

Silver Wheaton is focused on controlling its total cash costs to successfully traverse through the continuing tough global commodity demand and pricing environment by maintaining enough cash flows to continue with the daily operations profitably.

The metals streaming company is readily maintaining a solid balance sheet with notable cash levels and superior drawn and undrawn revolving credit facility to successfully pursue significant prospective growth opportunities.

The continuing cost-optimization initiatives of Silver Wheaton are believed to continue in the near future as a tool to emerge strongly from the presently tough global operational environment.

Despite current volatility in the global commodity demand and pricing environment, Silver Wheaton has announced $0.05 per share of dividend payment for the fourth quarter of 2015 and in line with its continued commitment to deliver outstanding shareholder returns.

The key metals streaming company uniquely reported extremely competitive and sustainable dividend yield amid difficult global operating scenario and thus highlighting solid growth strategy of the company.

Silver Wheaton is effectively growing both organically and through acquisitions that has enabled the company to maintain healthy cash position while delivering highly-competitive shareholder returns.

Long-term prospects

The share price of Silver Wheaton has notably exceeded the key metals prices including, gold, silver and the unique Philadelphia gold and silver index since the company’s start mainly due to Silver Wheaton’s exceptional growth profile, superior quality asset base and significant flexibility to increase the prices of precious metals.

Silver Wheaton is well-positioned for sustainable long-term growth with the company’s price performance notably outperforming the key metals index and Silver Wheaton continuously enhancing its contribution in the global silver production.

Silver Wheaton is an industry-leader in net earnings and cash flows compared to its peers and comprises of more than 45% of key earnings and cash flows delivered by other senior streamers.
The company also has impressive valuation and currently trading at a notable discount compared to other key senior steamers.

The continued weakness in the global commodity pricing environment has proved to be a dampener for the growth prospects of the key mining companies, but provides significant growth opportunities for major metal steaming enterprises.

Silver Wheaton is currently trading at attractive valuation levels compared to most of its peers and the company is believed to benefit from the ongoing weaker global commodity pricing environment. Therefore, this stock can be considered to be the right short-term investment option as of now.

Barclay’s key analyst Farooq Hamed has reiterated an “Overweight” rating on Silver Wheaton with a price target of $18 and primarily encouraged by a superior quality stream portfolio of the company which is believed to significantly expand annual cash flows and earnings at the existing commodity prices.

The consensus estimate among 18 polled investment analysts evaluating Silver Wheaton Corp. suggests that the company would outperform the market. This consensus rating is maintained since the investment analyst’s sentiments got better on Feb 15, 2006. The earlier consensus estimate suggested investors to hold their position in the company.

A majority of the key investment analysts are extremely positive about the growth prospects of Silver Wheaton mainly due to the favorable weaker global commodity pricing scenario and solid company fundamentals.

Conclusion

Overall, the investors are advised to purchase equity in Silver Wheaton Corp. looking at the attractive growth prospects of the company with PEG ratio of 0.67. The profit margin of 10.07% seems attractive. However, the trailing P/E and forward P/E ratios of 81.36 and 19.28 respectively indicate company’s overvaluation. Moreover, Silver Wheaton needs to optimize its debt-burdened balance sheet with significant total debt of $647.00 million against weaker total cash position of $80.51 million only, restricting the company to make future growth investments.
Published on Jan 11, 2016
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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