Agnico Eagle: Down but Not Out

10/20/2014 7:00 am EST

Focus: COMMODITIES

The falling gold price has hurt this recommended company’s shares, but its growth outlook is still strong and we think the greater drop in the share price has been overdone, explains Money Reporter.

Agnico Eagle Mines Ltd. (AEM) is a gold mining company with mining operations in Canada, Mexico, and Finland, and exploration activities in Canada, Europe, Latin America, and the US. The company operates eight mines.

One reason we believe the outlook for Agnico is positive is that it continues to outperform expectations.

For the six months ended June 30, 2014, Agnico’s adjusted net income was US$159.6 million, or $0.89 a diluted share, compared with $49.1 million, or $0.28 a share, in the same period of 2013.

The Street’s expectations for the company was for its adjusted earnings per share, or EPS, to come in at $0.22 in the first quarter and $0.27 in the second quarter. Instead, it earned $0.61 and $0.28, respectively.

Cash flow increased 68.3% to $333.3 million, due primarily to a 50.2% increase in gold production, the impact of a weaker Canadian dollar, and Mexican peso relative to the US dollar between periods on costs and a $13.7 million decrease in general and administrative expenses.

With the acquisition of a 50% interest in Osisko Mining in the second quarter and Agnico’s continued strong operating performance, management has increased its production guidance for 2014 by 14% to 1.3 million ounces. And it also anticipates increased guidance for 2015.

The stock trades at a somewhat high 23.6 times the C$1.43 a share in adjusted earnings that Agnico should earn in 2014. However, it trades at a more reasonable 8.9 times the company’s projected cash flow of $C3.78 a share.

Agnico Eagle is a buy for risk-tolerant investors seeking above-average appreciation potential.

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