Analyst Support for Tahoe Resources Softens: What’s Next?



Tahoe Resources

Until July 2017, Tahoe Resources (TAHO) had the highest percentage of “buy” ratings among the primary silver (SIL) miners, with 85.7% of analysts recommending a “buy.” On July 5, 2017, the government of Guatemala decided to revoke Tahoe Resources’ permit to operate its Escobal mine. 

The country’s government cited the company’s lack of consultation with the indigenous communities before starting the mine as the major reason for suspending its license. After this action, Tahoe Resources stock fell 43.3% year-to-date (or YTD) through October 6, 2017.

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Downgrades since July

Due to the weak performance of the stock and the uncertainty surrounding the outlook of the Escobal mine, Wall Street analysts have toned down their enthusiasm regarding the stock. TAHO currently has 47.0% “buy” and 53% “hold” ratings. It does not have any “sell” ratings. 

Several brokerage houses downgraded the stock after July 5. Since then, its stock has seen a target price downgrade of 36.7%.

Downgrades in revenues and earnings

Tahoe Resources’ (TAHO) 3Q17 revenue estimate of $118.9 million implies a revenue fall of 43.2% year-over-year (or YoY). Its fiscal 2017 revenue estimates also reflect an expected fall of 5% YoY.

Although the Guatemalan government had reinstated TAHO’s license in September 2017, there were several conditions attached that made it virtually useless. Developments regarding Coeur Mining’s Escobal mine could drag revenues down further.

The consensus EBITDA estimate for 2017 is $298.8 million, implying a margin of 40.1% compared with its margin of 47.2% in 2016. TAHO’s margins have been wider than those of Pan American Silver (PAAS), Coeur Mining (CDE), and Silver Standard Resources (SSRI). However, as we’ve discussed throughout this article, 2017 could be an exception.


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