What’s Driving Earnings Estimates for Hecla Mining?



Hecla’s earnings estimates

Previously in this series, we saw that most analysts are rating Hecla Mining (HL) as a “hold.” Stocks usually rise either on an expansion of their trading multiple or with an increase in earnings.

The day-to-day price movement is generally decided by changes in valuation multiples while the medium-term to long-term price action depends on earnings. Hecla has seen a significant valuation expansion this year due to better-than-expected metal prices and the resulting estimates for the company.

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Revenue estimates

The graph above shows Hecla’s consensus revenue and EBITDA estimates. According to data compiled by Bloomberg, analysts expect Hecla to deliver revenues of $529 million for 2016, which is an increase of 19% year-over-year.

Hecla started 2016 with a strong first quarter and also improved its silver production and cost guidance for 2016. Analysts also believe that with Hecla’s first quarter tracking above its annual guidance, there could be a further upside to its guidance. A strong performance along with improving precious metals prices since the start of the year has led analysts to revise their revenue forecast upwards. While analysts were projecting revenues of $456 million at the start of the year, that estimate has now increased by 13% to $517 million.

EBITDA estimates revised upwards

The estimates for the company’s next-four-quarter EBITDA (earnings before interest, tax, depreciation, and amortization) have seen a much larger increase. Analysts are currently forecasting EBITDA of $156 million, which is an increase of 121% year-to-date.

While precious metal prices (DBP) have risen, the company’s costs won’t increase at the same pace, which leads to higher margins. In 2015, Hecla’s EBITDA margin was 26.4%, whereas the implied margin according to consensus estimates would be 34% in 2016.

Before declining slightly in 2017, margins should again expand in 2018. This is mainly on the strength of Hecla’s cost-cutting efforts as well as improved precious metal price forecasts going forward.

However, Hecla isn’t unique as far as cost-cutting efforts are concerned. Other gold and silver miners such as Iamgold (IAG), AngloGold Ashanti (AU), and First Majestic Silver (AG) are also making efforts to reduce their costs.


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