Down 8% From Highs Seen In December 2023, Will Wheaton Stock Gain Following Q4 Results?

Wheaton Precious Metals stock (NYSE: WPM) is poised to publish its Q4 2023 results around mid-March. We estimate that the company’s revenue will come in at about $288 million for the quarter, marking an increase of about 22% versus last year, and slightly ahead of consensus estimates. We project that earnings will come in at about $0.33 per share, also slightly ahead of the consensus estimates. So what are some of the trends that are likely to drive the company’s earnings?

Wheaton’s production has been weighed down by multiple factors over 2023. Over the first nine months of the year, total production amounted to 444,600 gold equivalent ounces (GEO), marking a decrease of 6% versus the last year, primarily due to the cessation of production from Yauliyacu, 777, Keno Hill, and Minto silver interest mines in 2022 as well as the mining of lower-grade materials at Antamina. Moreover, the labor strike at the Peñasquito mine in Mexico,  the country’s largest gold mine and the second-largest silver mine, has also weighed on production. That said, this was partially offset by higher production at the Salobo and Constancia mines in South America. Things remained muted over Q4 as well, with the company reporting production of 584,892 GEO for the full year, below the anticipated range of 600,000 to 660,000 GEO. Prices for precious metals such as gold, which accounts for a bulk of the company’s revenue, have been ruling at near all-time highs in recent months, driven by easing inflation and slower interest rate hikes by the Federal Reserve. Gold prices at the beginning of the quarter stood at roughly $1,900 per ounce and rose to $2,060 per ounce by the end of December. This could potentially help price realizations to an extent.

Amidst the current backdrop, WPM stock has seen little change, moving slightly from levels of $40 in early January 2021 to around $40 now, vs. an increase of about 35% for the S&P 500 over this roughly 3-year period. Overall, the performance of WPM stock with respect to the index has been lackluster. Returns for the stock were 3% in 2021, -9% in 2022, and 26% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that WPM underperformed the S&P in 2021. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Materials sector including LIN, SHW, and RIO, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could WPM face a similar situation as it did in 2021 and underperform the S&P over the next 12 months – or will it see a strong jump?

Is Wheaton stock a buy at current levels? Precious metals prices should hold up, driven by easing inflation, concerns about global economic growth, and the updates from the Fed that it could cut interest rates over 2024. Moreover, despite near-term production declines, Wheaton’s overall production volumes are also set to pick up in the long run, with the company guiding average production of all metals (gold, silver, palladium, and cobalt) of 800,000 GEOs by 2028 and over 850,000 GEOs from 2029 to 2033. This marks an increase of over 35% compared to 2023. We estimate Wheaton Precious Metals valuation at $44 per share, slightly ahead of the current market price of $39 per share. See our analysis of Wheaton Precious Metals revenue for more details on the company’s business model and key revenue streams.

[1] Returns as of 2/28/2024
[2] Cumulative total returns since the end of 2016

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