Agnico Eagle: Is this Miner Set to Soar?

08/09/2019 5:00 am EST


Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

We’ve been writing about gold stocks for a couple of months, and last week proved to be a key test — and the group has thus far come through in great shape, explains Mike Cintolo, growth stock expert and editor of Cabot Top Ten Trader.

Agnico Eagle Mines (AEM) remains one of the leaders of the group’s move, with its quarterly report (and higher gold prices) leading to a big ramp in earnings estimates.

The second quarter wasn’t anything special for the company (sales slipped a bit, though EPS of 10 cents did double expectations), but it did reveal progress on expansion projects — one mine began commercial production in May and should ramp throughout the year, with another coming on-line later this quarter.

And while capital spending plans were boosted for the next couple of quarters, it should turn around after that—meaning Agnico will see greater production (expected to rise 14% next year) and lower CapEx in 2020 and beyond. (Even this year, all-in costs should average just $900 per ounce.)

And, of course, higher gold prices (95% of Agnico’s output is gold) will fall right to its bottom line as well. The end result — analysts see earnings more than doubling this year off a low base, and then surging another 75% next year; next year’s estimate has gone from $1 per share to $1.30 in just the past month.

Obviously, Agnico and its peers will be news-driven based on the latest economic and geopolitical events, but we like the solid organic growth story and the fact that few weak hands are invested after a few years in the ditch.

AEM was up and down (mostly down) since mid 2016, though after a nice off-the-bottom rally it did build a proper-looking base in April and May of this year.

And since then the stock’s character has clearly changed — it’s now rallied 12 weeks in a row, and we like how (on the daily chart) AEM shook out below its 25-day line on Thursday only to come booming back to its highs on huge volume. Expect volatility, but we’re OK starting a position on dips.

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