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Agnico Eagle (AEM) Rallies 18% in 3 Months: Time to Buy the Stock?
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Agnico Eagle Mines Limited’s (AEM - Free Report) shares have shot up 18.2% in the past three months, outperforming the Zacks Mining – Gold industry’s gain of 13.2%. The bullishness appears to have been catalyzed by a spike in gold prices, which has fueled expectations of strong earnings in the second quarter.
Notably, AEM stock has been hitting new highs lately riding on catapulting gold prices. AEM is currently trading close to its 52-week high of $77.04 reached on Jul 16, 2024.
Technical indicators for Agnico Eagle show strong bullish momentum. AEM has been incessantly trading above the 200-day simple moving average (SMA) since Mar 4, 2024. The stock also eclipsed its 50-day SMA on Jul 3, 2024. Notably, the 50-day SMA continues to read higher than the 200-day moving average since the golden crossover on Jan 1, 2024, indicating a bullish trend.
Agnico Eagle Trades Above 50-Day SMA
Image Source: Zacks Investment Research
Is the time right to buy AEM’s shares for potential upside? Let’s take a look at the stock’s fundamentals.
Advancement of Key Projects to Incite Growth
Agnico Eagle is focused on executing projects that are expected to provide additional growth in production and cash flows. It is advancing its key value drivers and pipeline projects including the Odyssey project in the Canadian Malartic Complex, Detour Lake, Hope Bay and San Nicolas. Moreover, at the Kittila mine — the largest primary gold producer in Europe — the company continues to expand the exploration drilling of Main and Sisar Zones to take advantage of better grades.
The Hope Bay Project, with proven and probable mineral reserves of 3.4 million ounces, is expected to play a significant role in generating cash flow in the coming years. The Meliadine phase 2 expansion is also progressing as planned, with mill capacity set to increase to 6,000 tons per day by the end of 2024.
The merger with Kirkland Lake Gold established Agnico Eagle as the industry's highest-quality senior gold producer. The integrated entity now has an extensive pipeline of development and exploration projects to drive sustainable growth and the financial flexibility to fund a strong pipeline of growth projects.
Solid Financial Health and Attractive Dividend Yield
AEM has a strong liquidity position and generates substantial cash flows, which allows it to maintain a strong exploration budget, finance a strong pipeline of growth projects, pay down debt and drive shareholder value. During the first quarter of 2024, Agnico Eagle upsized its revolving credit facility to $2 billion, significantly increasing its available liquidity. Its operating cash flow jumped more than 20% year over year to $783.2 million in the quarter. AEM also generated solid first-quarter free cash flows of roughly $395.6 million, driven by the strength in gold prices. It remains focused on paying down debt using excess cash, with net debt reducing by about $188 million sequentially to $1.3 billion at the end of the first quarter.
Rallying gold prices should boost AEM’s profitability and drive cash flow generation. Gold prices are hitting record highs this year and the yellow metal has been among the best-performing assets. Gold has rallied roughly 20% this year driven by strong demand from central banks, a dovish Fed interest rate outlook, global uncertainties and a surge in safe-haven demand thanks to geopolitical tensions. Prices skyrocketed to an all-time high of $2,482.29 on Jul 17, 2024, as ebbing inflation raised hopes of a U.S. interest rate cut in September.
Moreover, AEM offers a healthy dividend yield of 2.1% (above the S&P 500′s average dividend yield of roughly 2%) at the current stock price. It has a five-year annualized dividend growth rate of 22.2%. However, it has a high payout ratio of 66%, which raises questions about sustainability. Notably, a ratio below 60% is a good indicator that the dividend will be sustainable. Nevertheless, the company's dividend is perceived to be safe and reliable backed by strong cash flows and sound financial health.
Earnings Estimates Moving Higher
The Zacks Consensus Estimate for AEM’s 2024 earnings has increased 3.8% over the past 30 days. The consensus estimate for second-quarter 2024 earnings has also been revised 1.2% upward over the same time frame.
The Zacks Consensus Estimate for earnings for 2024 is currently pegged at $3.28, suggesting year-over-year growth of 47.1%. Moreover, earnings are expected to register a roughly 26.2% growth in the second quarter.
Image Source: Zacks Investment Research
Valuation: Bit Stretched But Reasonable
Agnico Eagle is currently trading at a forward 12-month earnings multiple of 22.66X, a roughly 36.6% premium to the peer group average of 16.59X. However, this stretched valuation should not scare investors away considering the company’s healthy earnings trajectory.
Image Source: Zacks Investment Research
AEM Outperforms Industry & S&P 500
Thanks to the rally in gold prices and solid earnings performance, AEM’s shares have performed impressively on the bourses this year. Its shares have rallied 37.6% year to date, topping the industry’s 25.7% rise and the S&P 500’s increase of 17.6%. Its gold mining peers, Barrick Gold Corporation (GOLD - Free Report) , Newmont Corporation (NEM - Free Report) and Kinross Gold Corporation (KGC - Free Report) have gained 4.4%, 16.6% and 49.6%, respectively, over the same period.
YTD Price Performance
Image Source: Zacks Investment Research
Wrapping Up
With a strong pipeline of growth projects, solid financial health and bullish technicals, AEM presents a compelling investment case for those seeking exposure to the gold mining space. A healthy growth trajectory and an attractive dividend yield are other positives. A favorable gold pricing environment also augurs well. We recommend investors to accumulate this Zacks Rank #2 (Buy) stock as it has solid growth prospects.
Image: Bigstock
Agnico Eagle (AEM) Rallies 18% in 3 Months: Time to Buy the Stock?
Agnico Eagle Mines Limited’s (AEM - Free Report) shares have shot up 18.2% in the past three months, outperforming the Zacks Mining – Gold industry’s gain of 13.2%. The bullishness appears to have been catalyzed by a spike in gold prices, which has fueled expectations of strong earnings in the second quarter.
Notably, AEM stock has been hitting new highs lately riding on catapulting gold prices. AEM is currently trading close to its 52-week high of $77.04 reached on Jul 16, 2024.
Technical indicators for Agnico Eagle show strong bullish momentum. AEM has been incessantly trading above the 200-day simple moving average (SMA) since Mar 4, 2024. The stock also eclipsed its 50-day SMA on Jul 3, 2024. Notably, the 50-day SMA continues to read higher than the 200-day moving average since the golden crossover on Jan 1, 2024, indicating a bullish trend.
Agnico Eagle Trades Above 50-Day SMA
Is the time right to buy AEM’s shares for potential upside? Let’s take a look at the stock’s fundamentals.
Advancement of Key Projects to Incite Growth
Agnico Eagle is focused on executing projects that are expected to provide additional growth in production and cash flows. It is advancing its key value drivers and pipeline projects including the Odyssey project in the Canadian Malartic Complex, Detour Lake, Hope Bay and San Nicolas. Moreover, at the Kittila mine — the largest primary gold producer in Europe — the company continues to expand the exploration drilling of Main and Sisar Zones to take advantage of better grades.
The Hope Bay Project, with proven and probable mineral reserves of 3.4 million ounces, is expected to play a significant role in generating cash flow in the coming years. The Meliadine phase 2 expansion is also progressing as planned, with mill capacity set to increase to 6,000 tons per day by the end of 2024.
The merger with Kirkland Lake Gold established Agnico Eagle as the industry's highest-quality senior gold producer. The integrated entity now has an extensive pipeline of development and exploration projects to drive sustainable growth and the financial flexibility to fund a strong pipeline of growth projects.
Solid Financial Health and Attractive Dividend Yield
AEM has a strong liquidity position and generates substantial cash flows, which allows it to maintain a strong exploration budget, finance a strong pipeline of growth projects, pay down debt and drive shareholder value. During the first quarter of 2024, Agnico Eagle upsized its revolving credit facility to $2 billion, significantly increasing its available liquidity. Its operating cash flow jumped more than 20% year over year to $783.2 million in the quarter. AEM also generated solid first-quarter free cash flows of roughly $395.6 million, driven by the strength in gold prices. It remains focused on paying down debt using excess cash, with net debt reducing by about $188 million sequentially to $1.3 billion at the end of the first quarter.
Rallying gold prices should boost AEM’s profitability and drive cash flow generation. Gold prices are hitting record highs this year and the yellow metal has been among the best-performing assets. Gold has rallied roughly 20% this year driven by strong demand from central banks, a dovish Fed interest rate outlook, global uncertainties and a surge in safe-haven demand thanks to geopolitical tensions. Prices skyrocketed to an all-time high of $2,482.29 on Jul 17, 2024, as ebbing inflation raised hopes of a U.S. interest rate cut in September.
Moreover, AEM offers a healthy dividend yield of 2.1% (above the S&P 500′s average dividend yield of roughly 2%) at the current stock price. It has a five-year annualized dividend growth rate of 22.2%. However, it has a high payout ratio of 66%, which raises questions about sustainability. Notably, a ratio below 60% is a good indicator that the dividend will be sustainable. Nevertheless, the company's dividend is perceived to be safe and reliable backed by strong cash flows and sound financial health.
Earnings Estimates Moving Higher
The Zacks Consensus Estimate for AEM’s 2024 earnings has increased 3.8% over the past 30 days. The consensus estimate for second-quarter 2024 earnings has also been revised 1.2% upward over the same time frame.
The Zacks Consensus Estimate for earnings for 2024 is currently pegged at $3.28, suggesting year-over-year growth of 47.1%. Moreover, earnings are expected to register a roughly 26.2% growth in the second quarter.
Valuation: Bit Stretched But Reasonable
Agnico Eagle is currently trading at a forward 12-month earnings multiple of 22.66X, a roughly 36.6% premium to the peer group average of 16.59X. However, this stretched valuation should not scare investors away considering the company’s healthy earnings trajectory.
AEM Outperforms Industry & S&P 500
Thanks to the rally in gold prices and solid earnings performance, AEM’s shares have performed impressively on the bourses this year. Its shares have rallied 37.6% year to date, topping the industry’s 25.7% rise and the S&P 500’s increase of 17.6%. Its gold mining peers, Barrick Gold Corporation (GOLD - Free Report) , Newmont Corporation (NEM - Free Report) and Kinross Gold Corporation (KGC - Free Report) have gained 4.4%, 16.6% and 49.6%, respectively, over the same period.
YTD Price Performance
Wrapping Up
With a strong pipeline of growth projects, solid financial health and bullish technicals, AEM presents a compelling investment case for those seeking exposure to the gold mining space. A healthy growth trajectory and an attractive dividend yield are other positives. A favorable gold pricing environment also augurs well. We recommend investors to accumulate this Zacks Rank #2 (Buy) stock as it has solid growth prospects.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.