Franco-Nevada: Outlook for Gold Streamer Continues to Brighten

02/17/2020 5:00 am EST


Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

The growing outbreak of the coronavirus has boosted uncertainty, and one of the big beneficiaries of uncertainty is precious metals prices, especially gold, which has extended its December strength as investors look for safe havens, notes Mike Cintolo, growth stock expert and editor of Cabot Top Ten Trader.

Franco-Nevada (FNV) is one of the leading royalty and streaming operators in the sector, with stakes in a few dozen producing mines that crank out mostly gold but also silver, platinum and some copper; interestingly, Franco is also moving into the energy field, grabbing shares from royalty owners and private equity firms that want out.

Even so, gold is the big producer here (nearly two-thirds of Q3 revenue), so the spike is set to help, as are some organic expansions going on at a variety of mines has stakes in; analysts see earnings up 26% in 2020, and that could easily prove conservative should prices continue due north.

That said, there’s actually a longer-term story here — given the ramp at its largest mine (30% gain in output from during the next few years) and its expected investments into energy (leading to a doubling of oil/gas revenue), Franco thinks its cash flow is likely to soar 50% from 2018 to 2023.

Obviously a lot of that will depend on prices and future decisions, but with gold back in an uptrend and a solid overall outlook, this company’s prospects continue to brighten.

FNV had a nice run with most precious metals stocks from May through August last year, then based out for a while, with shares tightening up in November and early December.

A pickup in gold prices at that point helped FNV break out above $100, and the advance has accelerated this year as the world’s uncertainties grow. The shares are extended here, but normal dips should offer good buying opportunities.

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