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.
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.