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AEM Stock, Riding Gold Price Rally, Up 41%: Buy, Sell or Hold?
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Agnico Eagle Mines Limited’s (AEM - Free Report) shares have shot up 40.7% in the past six months, outperforming the Zacks Mining – Gold industry’s rise of 26%. The rally has been propelled by a spike in gold prices and AEM’s forecast-topping earnings performance.
Technical indicators for Agnico Eagle show bullish momentum. AEM has been incessantly trading above the 200-day simple moving average (SMA) since March 4, 2024. The stock also eclipsed its 50-day SMA on July 3, 2024. 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’s Shares Trade Above 50-Day SMA
Image Source: Zacks Investment Research
AEM is currently trading at a roughly 5% discount to its 52-week high of $83.50 reached on Aug. 26, 2024.
Let’s take a look at AEM’s fundamentals to better analyze how to play the stock.
AEM Stock Poised for Growth on Advancement of Key Projects
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, Upper Beaver, Hope Bay and San Nicolas. 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 mill expansion project was completed in the second quarter of 2024, 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.
AEM’s Solid Financial Health & Capital Discipline Bode Well
AEM has a strong liquidity position and generates substantial cash flows, which allow 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 roughly 33% year over year to record $961.3 million in the second quarter. AEM also generated solid second-quarter free cash flows of $557.2 million, backed by the strength in gold prices and strong operational results. It remains focused on paying down debt using excess cash, with net debt reducing by $396.7 million sequentially to $919.7 million at the end of the last reported 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 22% 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 surpass the $2,500 per ounce level for the first time on Aug. 2, 2024, as ebbing inflation raised hopes of a U.S. interest rate cut in September. Increased tensions in the Middle East and concerns over an economic slowdown also fueled safe-haven demand. Prices rallied to a record high of $2,531.70 per ounce on Aug. 20, 2024, on growing Fed rate cut expectations.
AEM offers a healthy dividend yield of 2% at the current stock price. It has a five-year annualized dividend growth rate of 22.2%. AEM has a payout ratio of 56% (a ratio below 60% is a good indicator that the dividend will be sustainable). The company's dividend is perceived to be safe and reliable, backed by strong cash flows and sound financial health.
Higher Costs Pose Concerns for Agnico Eagle
Agnico Eagle, like most miners, is plagued by higher production costs. In the second quarter of 2024, its total cash costs per ounce of gold were up roughly 4% from the previous year. All-in-sustaining costs (AISC) — the most important cost metric of miners — also rose roughly 2% year over year. While AEM is taking actions to control costs, the inflationary pressure is likely to continue over the near term, weighing on its profit margins and overall financial performance. Higher sustaining capital expenditures and cash costs are expected to contribute to increased AISC.
AEM’s Earnings Estimates Instill Optimism
The Zacks Consensus Estimate for AEM’s 2024 earnings has been going up over the past 60 days. The consensus estimate for third-quarter 2024 earnings has also been revised upward over the same time frame.
The Zacks Consensus Estimate for earnings for 2024 is currently pegged at $3.65, suggesting year-over-year growth of 63.7%. Earnings are expected to register a roughly 104.6% growth in the third quarter.
Image Source: Zacks Investment Research
Agnico Eagle Stock’s Valuation Looks Reasonable
Agnico Eagle is currently trading at a forward 12-month earnings multiple of 21.58X, a roughly 41.5% premium to the peer group average of 15.25X. The valuation looks reasonable, considering the company’s healthy earnings trajectory.
Image Source: Zacks Investment Research
AEM Stock 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 44.2% year to date, topping the industry’s 27% rise and the S&P 500’s increase of 15%. Its gold mining peers, Barrick Gold Corporation (GOLD - Free Report) , Newmont Corporation (NEM - Free Report) and Kinross Gold Corporation (KGC - Free Report) , have gained 9.2%, 22.6% and 51.2%, respectively, over the same period.
AEM’s YTD Stock Price Performance
Image Source: Zacks Investment Research
Final Thoughts: Hold Onto AEM Stock
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. Despite the upbeat growth prospects, AEM's high production costs warrant caution. Balancing these factors, holding onto this Zacks Rank #3 (Hold) stock will be prudent for investors who already own it.
Image: Bigstock
AEM Stock, Riding Gold Price Rally, Up 41%: Buy, Sell or Hold?
Agnico Eagle Mines Limited’s (AEM - Free Report) shares have shot up 40.7% in the past six months, outperforming the Zacks Mining – Gold industry’s rise of 26%. The rally has been propelled by a spike in gold prices and AEM’s forecast-topping earnings performance.
Technical indicators for Agnico Eagle show bullish momentum. AEM has been incessantly trading above the 200-day simple moving average (SMA) since March 4, 2024. The stock also eclipsed its 50-day SMA on July 3, 2024. 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’s Shares Trade Above 50-Day SMA
AEM is currently trading at a roughly 5% discount to its 52-week high of $83.50 reached on Aug. 26, 2024.
Let’s take a look at AEM’s fundamentals to better analyze how to play the stock.
AEM Stock Poised for Growth on Advancement of Key Projects
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, Upper Beaver, Hope Bay and San Nicolas. 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 mill expansion project was completed in the second quarter of 2024, 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.
AEM’s Solid Financial Health & Capital Discipline Bode Well
AEM has a strong liquidity position and generates substantial cash flows, which allow 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 roughly 33% year over year to record $961.3 million in the second quarter. AEM also generated solid second-quarter free cash flows of $557.2 million, backed by the strength in gold prices and strong operational results. It remains focused on paying down debt using excess cash, with net debt reducing by $396.7 million sequentially to $919.7 million at the end of the last reported 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 22% 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 surpass the $2,500 per ounce level for the first time on Aug. 2, 2024, as ebbing inflation raised hopes of a U.S. interest rate cut in September. Increased tensions in the Middle East and concerns over an economic slowdown also fueled safe-haven demand. Prices rallied to a record high of $2,531.70 per ounce on Aug. 20, 2024, on growing Fed rate cut expectations.
AEM offers a healthy dividend yield of 2% at the current stock price. It has a five-year annualized dividend growth rate of 22.2%. AEM has a payout ratio of 56% (a ratio below 60% is a good indicator that the dividend will be sustainable). The company's dividend is perceived to be safe and reliable, backed by strong cash flows and sound financial health.
Higher Costs Pose Concerns for Agnico Eagle
Agnico Eagle, like most miners, is plagued by higher production costs. In the second quarter of 2024, its total cash costs per ounce of gold were up roughly 4% from the previous year. All-in-sustaining costs (AISC) — the most important cost metric of miners — also rose roughly 2% year over year. While AEM is taking actions to control costs, the inflationary pressure is likely to continue over the near term, weighing on its profit margins and overall financial performance. Higher sustaining capital expenditures and cash costs are expected to contribute to increased AISC.
AEM’s Earnings Estimates Instill Optimism
The Zacks Consensus Estimate for AEM’s 2024 earnings has been going up over the past 60 days. The consensus estimate for third-quarter 2024 earnings has also been revised upward over the same time frame.
The Zacks Consensus Estimate for earnings for 2024 is currently pegged at $3.65, suggesting year-over-year growth of 63.7%. Earnings are expected to register a roughly 104.6% growth in the third quarter.
Agnico Eagle Stock’s Valuation Looks Reasonable
Agnico Eagle is currently trading at a forward 12-month earnings multiple of 21.58X, a roughly 41.5% premium to the peer group average of 15.25X. The valuation looks reasonable, considering the company’s healthy earnings trajectory.
AEM Stock 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 44.2% year to date, topping the industry’s 27% rise and the S&P 500’s increase of 15%. Its gold mining peers, Barrick Gold Corporation (GOLD - Free Report) , Newmont Corporation (NEM - Free Report) and Kinross Gold Corporation (KGC - Free Report) , have gained 9.2%, 22.6% and 51.2%, respectively, over the same period.
AEM’s YTD Stock Price Performance
Final Thoughts: Hold Onto AEM Stock
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. Despite the upbeat growth prospects, AEM's high production costs warrant caution. Balancing these factors, holding onto this Zacks Rank #3 (Hold) stock will be prudent for investors who already own it.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.