Why Analysts Still Favor Wheaton Precious Metals

Analysts’ ratings for WPM

Among the major gold mining and gold streaming companies, Wheaton Precious Metals (WPM), the world’s largest precious metals streaming company, has received the highest percentage of “buy” recommendations at 92.0%, and this level hasn’t changed much over the past year.

Why Analysts Still Favor Wheaton Precious Metals

Distinct business model

Wheaton Precious Metals, previously known as Silver Wheaton (SLW), is a royalty and streaming company. Unlike their mining peers (GDX), royalty and streaming companies don’t own mines. In fact, they provide up-front funds to precious metals mining companies in exchange for the right to buy their product streams at lower prices in the future. Since they don’t own or operate mines, the operating risks are considerably lower, and the upside is higher when a miner upgrades a mine or its estimated reserves and resources surprise on the upside.

Currently, 12 Wall Street analysts are covering Wheaton Precious Metals, according to the consensus compiled by Thomson Reuters. Of these analysts, 92.0% have recommended “buys” on the stock. Close peers Franco-Nevada Corporation (FNV) and Royal Gold (RGLD) have “buy” recommendations from 60% and 64% of analysts, respectively.

Future development potential

WPM’s stock price hasn’t gained much YTD. Its stock has risen 0.2% as of June 13 compared to Royal Gold’s (RGLD) rise of 11.7%. Its other two close peers, however, have given negative returns YTD. While FNV has returned -12.3% YTD, Sandstorm Gold (SAND) has fallen 9.4% YTD.

Analysts are optimistic about the future development projects the company is financing. Wheaton Precious Metals estimates that production from these projects could lead to production growth of more than 45% between 2017 and 2021. Wheaton struck a deal with First Majestic Silver (AG) for the right to purchase gold and silver streams from its San Dimas mine in Mexico in January, which was seen as a positive development for the company. Analysts have also appreciated its increasing contribution from gold in contrast to silver. Moreover, the company has quality assets in safe jurisdictions and a manageable debt level.

Wheaton Precious Metals’ average price target implies a potential upside of 24.4%.

Valuations

Wheaton Precious Metals is trading at a forward enterprise value-to-EBITDA multiple of 17.9x. This multiple implies a discount of 2.0% to its average peer multiple and a premium of 17% to its trailing-five-year average multiple. Its multiple has risen compared to its historical multiple mainly due to the increase in gold’s contribution to its overall revenue.

For more coverage on royalty companies’ relative valuations, read Which Royalty and Streaming Companies Could Be Rerated in 2018? In the next article, we’ll look at IAMGOLD (IAG).