Wheaton Precious Metals’ Stock Is Up 40% In A Year; Will The Good Time Continue?

by Trefis Team
Wheaton Precious Metals
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Wheaton Precious Metals (NYSE: WPM) saw its stock price rise by close to 40% in the last one year, from $21 in January 2019 to $29 in January 2020, led by expectations of revenue growth (after multi-year revenue decline) and a pick up in gold prices. Despite such a healthy growth, based on current market price and future growth prospects, Trefis believes that the stock still has scope to head higher. Trefis has a price estimate of $32 per share for Wheaton Precious Metals stock, which is higher than its current market price of around $29 as of February 5, 2020. This reflects an upside of about 10% from its current level.

View the Trefis interactive dashboard on Wheaton Precious Metals Valuation that details the factors driving a higher stock price estimate for the company, where you can alter the key assumptions and arrive at your own estimate for WPM’s stock.

Company Overview

  • Wheaton Precious Metals Corporation is the world’s largest silver streaming company, with fourteen silver purchase agreements.
  • WPM has also increased its share of gold production with new purchase agreements. The New San Dimas agreement has taken WPM’s gold revenues well beyond its silver sales.
  • Palladium is a new addition to the company’s business in 2018, offers product diversification benefits.
  • The primary competitors include: Newmont Goldcorp, Barrick Gold, Freeport-McMoRan, etc.

A] Estimating Revenue Growth

  • WPM’s total revenues have dropped almost $100 million in the last two reported years, from $892 million in 2016 to $794 million in 2018. However, total revenue is expected to increase by about $160 million over the next two years.
  • Total revenue is expected to increase by 11% to $881 million in 2019 and further by 8.4% to reach over $955 million by 2020.
  • Higher revenue is likely to be driven by healthy growth in the gold and palladium division, partially offset by a drop in silver sales.

a) Gold Revenue

  • Gold revenue increased modestly from $411 million in 2016 to $441 million in 2018.
  • However, with the company’s renewed and greater focus on its gold division, gold revenue is expected to witness a sharp increase, with the segment adding ~$175 million by 2020.
  • Shipments are expected to increase in the near term, following the acquisition of a new gold stream at Stillwater, and the New San Dimas agreement under which silver production that was attributable to the company under the old agreement would now be converted to the equivalent gold volume.
  • Price realization is set to improve with a rise in global gold prices following higher retail and institutional investment in the yellow metal in the face of rising economic uncertainty.

b) Silver Revenue

  • Segment revenues have seen a continuous decline due to lower production and fall in global silver prices.
  • The trend is likely to continue in the near term with WPM expected to lose over $42 million of its silver revenue by 2020, led by volume decline.
  • Silver price realization is expected to gradually increase from $15.81/ounce in 2018 to $16.75/ounce in 2020, due to an increase in prices of precious metals with an expected global economic slowdown.

c) Palladium Revenue

Palladium is a new addition to WPM’s revenue streams since Q3 2018, with the segment adding $9.2 million in FY 2018. To understand how Palladium revenues are expected to move going forward and its impact on WPM’s total revenues, view our interactive dashboard analysis – Wheaton Precious Metals Revenues: How Does WPM Make Money?

B] Estimating Net Income

  • Net Income increased from $195 million in 2016 to $427 million in 2018. The sharp rise in 2018 was driven by one-time tax benefits realized.
  • However, net income is expected to decrease to $238 million in 2019, on the back of higher base effect and large impairment charge recorded in Q2 2019, related to the recoverable amount under Voisey’s Bay PMPA (precious metals purchase agreement with Vale to acquire cobalt from the facility) being $166 million less than its carrying value.
  • This is expected to be followed by a recovery in net income to $315 million in 2020.
  • Net income margins are expected to fall from 53.8% in 2018 to 27% in 2019, with a rise to 33% in 2020.

C] Estimating Earnings Per Share

  • EPS has grown from $0.44 in 2016 to $0.96 in 2018. We estimate it to be $0.54 and $0.71 in 2019 and 2020, respectively
  • Lower EPS in 2020 and 2021 can be attributed to lower net income and an almost stable share count.

D] Share Price Estimation

  • As per Wheaton Precious Metals Valuation by Trefis, we have a price estimate of $32 per share for the company’s stock.
  • The stock price estimate is arrived at by using the discounted cash flow valuation technique, which you can find in WPM’s detailed financial model here.
  • Based on projected EPS of $0.71 per share and a stock price estimate of $32 per share, Wheaton Precious Metals’ forward price-to-earnings (P/E) multiple stands at 45.1x.

To understand how WPM’s P/E multiple over the years stands in comparison to its major peers, view our interactive dashboard.


See all Trefis Price Estimates and Download Trefis Data here

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