AEM Stock Study (6-26-23)

I recently did a stock study on Agnico Eagle Mines Ltd. (AEM) with a closing price of $49.11.

M* writes:

     > Agnico Eagle is a gold miner with mines in Canada, Mexico, Finland,
     > and Australia. Agnico operated just one mine, LaRonde, as recently
     > as 2008 before bringing its other mines online in rapid succession
     > in the following years. It merged with Kirkland Lake Gold in 2022,
     > acquiring the Detour Lake and Macassa mines in Canada along with
     > the high-grade, low-cost Fosterville mine in Australia. It produced
     > more than 3.1 million gold ounces in 2022 and had about 15 years
     > of gold reserves at end 2022. Agnico Eagle is focused on increasing
     > gold production in lower-risk jurisdictions and bought the
     > remaining 50% of its Canadian Malartic mine along with the
     > Wasamac project and other assets from Yamana Gold in 2023.

Over the past decade, this medium-size company has grown sales at an annualized rate of 12.2%. EPS has grown at an annualized rate of 16.9% since 2016 (’14 and ’15 excluded due to low fractional EPS that would artificially inflate growth rate and 2018 d$1/40/share excluded as a downside outlier). PTPM lags industry averages over the last 10 years despite trending up recently with a last-5-year mean of 17.1%.

Over the past decade, ROE has been roughly equal to industry averages despite recently trending down with a last-5-year mean of 5.2%. Debt-to-Capital has been less than industry averages and trending down in recent years with a last-5-year mean of 21.5%. Interest Coverage is over 47 and Quick Ratio is 0.9. M* gives a Standard rating for Capital Allocation and Value Line gives a B+ rating for Financial Strength.

With regard to sales growth:

• CNN Business projects 15.8% YOY and 9.2% per year for ’23 and ’22-’24 (based on 19 analysts).
• YF projects YOY 14.9% and 1.5% for ’23 and ’24, respectively (18 analysts).
• Zacks projects YOY 12.3% and 1.0% for ’23 and ’24, respectively (4).
• Value Line projects 11.3% annualized growth from ’22-’27.
• CFRA projects 18.2% YOY and 8.3% per year for ’23 and ’22-’24, respectively.
• M* gives a 2-year ACE of 24.2% annualized growth.

I am forecasting toward the lower end of the range at 6.0%.

With regard to EPS growth:

• CNN Business projects contraction of 5.9% YOY and 1.1% per year for ’23 and ’22-’24, respectively (based on 19 analysts), along with 5-year annualized growth of 1.0%.
• MarketWatch projects 2.0% per year growth and 2.5% per year contraction for ’22-’24 and ’22-’25 (21 analysts).
• Nasdaq.com projects 1.1% per year growth and 5.0% per year contraction for ’23-’25 and ’23-’26 [6, 3, and 1 analyst(s) for ’23, ’25, and ’26].
• YF projects YOY 3.1% contraction and 1.4% growth for ’23 and ’24, respectively (17), along with 5-year annualized contraction of 3.6%.
• Zacks projects YOY 2.6% contraction and 8.9% growth for ’23 and ’24, respectively (6), along with 5-year annualized growth of 1.0%.
• Value Line projects 18.8% annualized growth from ’22-’27.
• CFRA projects contraction of 3.9% YOY and 2.2% per year for ’23 and ’22-’24 along with a 3-year CAGR of 1.0%.

I am forecasting toward the bottom of the long-term-estimate range (mean of four: 4.3%) at 0%. My initial value is ’23 Q1 EPS of $5.08 (annualized). For low EPS, I am arbitrarily choosing to bypass ’22 EPS of $1.53/share because it seems curiously low [Value Line and CFRA’s normalized EPS reflect less than a 10% YOY decrease for ’22 versus M*’s GAAP reporting of a 31% YOY decrease]. I will use ’21 EPS of $2.22/share instead.

My Forecast High P/E is 25.0. Over the past decade, high P/E has ranged from 32.6 in ’19 to 317 in ’15. The last-5-year mean high P/E is 38.4 and the last-5-year-mean average P/E is 29.7. I am forecasting below the range.

My Forecast Low P/E is 13.0. Over the past decade, low P/E has ranged from 14.8 in ’20 to 191 in ’15 with a last-5-year mean of 19.8. I am forecasting below the range.

My Low Stock Price Forecast (LSPF) is the default value of $28.90 based on $2.22/share initial value. This is 41.1% less than the previous closing price and 21.3% less than the 52-week low.

Over the past decade, Payout Ratio has ranged from 27.6% in ’19 to 291% in ’15 with a last-5-year mean of 60.1% (’22 is 105%). I am forecasting below the entire range at 27.0%.

These inputs land AEM in the BUY zone with a U/D ratio of 3.9. Total Annualized Return (TAR) is 22.0%.

PAR (using Forecast Average—not High—P/E) is 15.9%, which is phenomenal. This is among the highest PAR values ever seen in one of my stock studies.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 52 studies over the past 90 days (24 outliers and my study excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 12.0%, 11.2%, 33.2, 19.8, and 43.7%, respectively. I am lower across the board. Value Line projects an average annual P/E of 20.0, which is lower than MS (26.5) and higher than mine (19.0).

MS high and low EPS are $4.38/share and $2.12/share vs. my $5.08 and $2.22. My high EPS is based on the last quarterly value that was not available for some studies done in the past 90 days. I am basically sacrificing growth rate for a higher initial value, but my P/E range remains significantly lower. MOS seems healthy in this study.

MS LSPF of $36.70 implies a Forecast Low P/E of 17.3 (versus the above-stated 19.8). This is 12.6% less than the default value $2.12 * 19.8 = $41.98, which represents more conservative zoning. It still remains 27.0% higher than mine, though.

PEG ratio and Relative Value [(current P/E) / 5-year-mean average P/E] are other valuation metrics I have recently begun to monitor. Zacks reports PEG of 21.9 based on a 5-year EPS growth rate of 1.0% (upper limit generally regarded to be 1.5). Relative Value (M* data) is 0.33. The latter seems attractive whereas the former does not.

I sense some disconnect that may only really be understood by digging into the corporate filings. ’22 GAAP EPS is much different from [CFRA or Value Lines’] normalized. Value Line’s long-term growth estimate soars high above the other three (with YF solidly negative). ’23 Q1 EPS (annualized) is 232% greater than ’22. Perhaps part of the disconnect is seeing [at least one] long-term estimate(s) for the new, combined company (with Kirkland Lake Gold and/or Yamana Gold) vs. historical results from AEM alone.

Maybe I arbitrarily knock 5-10% off my max buy price to account for whatever it is I’m missing (part of “the 20%,” as Ann Cuneaz would say). Otherwise, I’d be a buyer under $53/share.