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Who’s Changing Minds on Royal Gold?

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RGLD’s analyst recommendations

We’ve already discussed Wheaton Precious Metals (WPM), previously known as Silver Wheaton (SLW), in this series. Like WPM, Royal Gold (RGLD) is a royalty and streaming company that is mostly involved in the acquisition of precious metal royalties in exchange for funding to miners.

RGLD is being covered by 13 Wall Street analysts right now, of which 54% recommend a “buy” for the stock, while 46% recommend a “hold.” There are no “sell” recommendations for the stock.

Notably, Wheaton Precious Metals, Franco-Nevada (FNV), and Sandstorm Gold (SAND) also have no “sell” recommendations—a trend that could be due to the conservative nature of the business, which flourishes even when precious metal prices are weak.

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Implied returns

Royal Gold’s stock has returned 32% YTD (year-to-date) as of December 11, 2017, outperforming its close peers (GDX) (GOAU). The company has consistently reported strong margins and healthy cash flow. Its net earnings have also risen 56% YoY (year-over-year).

RGLD’s dividends have also been robust, and it has already announced a 5% YoY rise in dividends for fiscal 2017. These characteristics appear to have earned investor confidence during a time of volatility for precious metal prices.

RGLD’s upside potential of 12.0% is based on its target price of $93.63.

Valuations

Royal Gold is now trading at a forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 16.6x—a 12.5% discount to the peer average. But it’s trading at a premium of 22.6% compared to its historical average five-year multiple.

Royal Gold has diversified significantly over the past couple of years, and many believe that the company is worth watching because another accretive acquisition could provide a further catalyst for the stock.

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