These Factors Could Be Priced into AEM’s Earnings Estimates



Factors impacting Agnico’s estimates

Agnico Eagle Mines’ (AEM) operating performance in 2017 was quite strong. Its stock almost matched the performance of the benchmark gold miners’ index (GDX). AEM gained 10.0% in 2017. Its performance was almost on par with that of Newmont Mining (NEM), which gained 10.1% in 2017. In contrast, senior miners Barrick Gold (ABX) and Goldcorp (GG) returned -9.4% and -6.1%, respectively, in 2017.

Agnico Eagle Mines has a strong and consistent execution record. The company, however, has lower financial and operating leverage, which makes it less sensitive to gold price (GLD) movements. Its leveraged peers (RING)—Coeur Mining (CDE), Kinross Gold (KGC), Barrick Gold (ABX), IAMGOLD (IAG), and Yamana Gold (AUY)—are more sensitive to gold prices.

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Analysts’ revenue estimates

While Agnico’s production is expected to decline slightly in 2017, analysts are estimating growth of 4.7% year-over-year (or YoY) in its revenues to $2.2 billion. Most of the growth is attributable to the change in precious metal prices during the period. The revenues are expected to decline by 2.1% in 2018. Agnico’s growth projects should kick in after 2018, which should drive the production growth in 2019 and beyond. Analysts are estimating AEM’s revenues to come in at $2.3 billion for 2019, implying YoY growth of 4.5%. Investors should also note that Agnico Eagle Mines’ project pipeline is one of the strongest in the gold sector.

Earnings estimates

While Agnico’s revenues are not expected to rise much until its projects kick in, the same is not true for its margins. Analysts are expecting EBITDA (earnings before interest, tax, depreciation, and amortization) of $951.4 million for 2017, implying a margin of 42.5%. The margins are further expected to grow to 44.2% in 2018 and 46.1% in 2019. The increasing margin expectations are due to declining costs as revenues expand. AEM’s upcoming projects should have lower costs than its current average costs, which could help its margins going forward.


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