Silver Wheaton: Buy Despite Weakness for Huge Gains

In the last two months, gold and silver prices have shot up nearly 2% and 11% respectively. In fact, these prices have improved approximately 17% and 21% respectively in the past six months. This strong rally in the gold and silver prices has allowed companies such as Silver Wheaton (SLW) to improve its financial performance significantly.

A mixed performance

For instance, its revenue for the first-quarter came in at $188 million, up more than 44% as compared to revenue of $130.5 million in the same quarter a year earlier.
Moreover, its revenue topped the analysts’ estimates by $1.77 million for the quarter. This growth in the revenue can be attributed to higher sales and production volumes for the quarter that rose 65% and 24% on a year-over-year basis. The most important thing is that this increase in the revenue was despite the fact that the average realized silver equivalent selling price had dropped 13% year-over-year.

However, this lower average realized silver equivalent selling price combined with higher G&A expenses and interest costs impacted its gross margin per silver equivalent ounces sold. For example, its G&A cost for the quarter came in at $9 million, up approximately $3 million as compared to the same quarter last year. Meanwhile, its interest expenses for the quarter increased 362% to $6.9 million from $1.5 million in the first-quarter of 2015. On account of these higher expenses, its corporate costs rose 27% on a year-over-year basis, as shown in the table below.

Thus, these factors caused its gross margin for the quarter to fall around 7% to $60 million on a year-over-year basis, reducing its operating margin by 17% to 32%. As a result of this lower operating margin, its net earnings for the quarter were at $0.10 per share, as against the net earnings of $0.13 per share in the first-quarter of 2015.

Looking ahead, Silver Wheaton should see an improvement in its earnings performance due to positive forecasts for gold and silver prices. Moreover, the firm recently upgraded a number of equities on the same platform to outperform the market from market performs. These equities include Yamana Gold (AUY), Pan American Silver (PAAS), Coeur Mining (CDE), and Silver Wheaton.


With the improvement in the gold and silver prices, Silver Wheaton remains a safe long-term bet. The company has recently produced terrific silver production and silver sales volumes and stays high on these metrics that should drive its top line performance going forward. Moreover, the demand for silver is expected to increase in the long-term as stated above that should support silver prices and help Silver Wheaton improving its bottom line performance.
Published on May 24, 2016
By Yaggyaseni Mittra

Copyrighted 2020. Content published with author's permission.

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