Silver Wheaton (SLW, Financial) ended fiscal 2014 on a decent note. The company, despite a challenging commodity pricing environment, achieved the highest production levels in the industry. However, if we talk about the recently reported quarter, Silver Wheaton fell short of delivering impressive results. The company couldn’t meet its expectation on key financials including revenue, profit and net earnings.
But, it saw good improvement in the sales, which is a good sign. Due to some key aspects, Silver Wheaton is confident of performing better in the future despite challenging commodity pricing. Having grown its product portfolio and with an impressive portfolio with 27 assets, Silver Wheaton is looking forward to work towards creating further opportunities and growth in 2015
A closer look
Silver Wheaton’s quarterly revenue declined by 16% delivering $140.4 million as compared to $167.4 million in the same quarter last year. Compared to other quarters in fiscal 2014, its silver equivalent production also declined by 8%. However, the company still saw a solid 7% increase in silver equivalent sales. Silver Wheaton’s cash operating margin also declined by a disappointing 27%. This might scare investors away from the stock but a marginally sound dividend $0.05 per share might attract few investors to the stock, gaining market share in the future.
Silver Wheaton is positioned exceptionally well for significant growth in the upcoming years. Salobo mine is expected to stand out as a solid growth driver for the company. In fact, the company has also expanded the Salobo mine with Vale completion. This has doubled the mine capacity which will be further help the company to improve its production in the upcoming quarters. Salobo is among the largest gold deposit in Brazil and with these expansion initiatives yielding good synergies, Silver Wheaton is further looking for expansion of this in 2015.
Factors to drive growth
Moving ahead to Primero mine, though the mine’s performance was soft throughout 2014, the company is confident that this mine will be another growth contributor. In addition, Primero is putting efforts to expand its production to 3000 tons per day by the middle of 2016 which can be a solid long term prospect for Silver Wheaton.
The company looks well positioned for a solid comeback in upcoming fiscal year. With its key growth drivers including Salobo and Constancia, it is expecting positive organic growth in 2015. Further, if such favourable trends continue, Silver Wheaton is expecting the overall production growth to rise by 40% in the coming five years. Besides this, Silver Wheaton is also engaged in cost cutting initiatives. It is looking for maintaining lowest half of respective cost curves to stay profitable maintaining good margins as well.
If we look at the overall silver industry, the prices of silver are more likely to push down due to number of factors. The analysts are expecting that the gold and silver will continue to go up and down but silver seems to be more fluctuating as compared to gold. The U.S economy will also play a major role in pushing the prices down as recession is likely to push prices lower.
Conclusion
Moving on to the fundamentals, with a trailing P/E of 36.31 the stock looks reasonable and the forward P/E of 23.48 shows impressive growth in the earnings in the near term. An impressive profit margin of 32.22%, the company is expected to attract investors, growing its market share further. In addition, many of Silver Wheaton’s opportunities are under construction which are expected to help it to strengthen its balance sheet in future. Hence, as of now Silver Wheaton is definitely a good pick.
