Up 9% This Year, Will Wheaton Stock Rally Further After Q1 Results?

Wheaton Precious Metals stock (NYSE: WPM) is poised to publish its Q1 2024 results in early May, reporting on a quarter that saw gold prices move considerably higher. We estimate that the company’s revenue will come in at about $285 million for the quarter, marking an increase of about 33% versus last year, and slightly ahead of consensus estimates. We project that earnings will come in at about $0.30 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 for the quarter?

Wheaton’s production was weighed down by multiple factors over 2023, including the strike in the Peñasquito mine in Mexico. The company reported production of 584,892 gold equivalent ounces (GEO) for the full year, below its guidance. However, things could look up in 2024. For this year, the company is looking at production of between 550,000 to 620,000 GEO, driven by stronger attributable production from Peñasquito mine which is expected to see uninterrupted operations., and also at Voisey’s Bay due to the ongoing transition from the Ovoid pit to the underground mines. However, this could be partly offset by lower output from the Salobo mine in Brazil, which is expected to see more lower-grade ores. Prices for precious metals such as gold, which accounts for a bulk of the company’s revenue, have been trading at near all-time highs in recent months. Gold prices have risen from $2,060 per ounce by the end of December 2023 to levels of over $2,250 per ounce as of the end of March. Gold futures presently trade at about $2,350 per ounce. This could potentially help price realizations to an extent.

WPM stock has shown strong gains of 40% from levels of $40 in early January 2021 to around $55 now, vs. an increase of about 35% for the S&P 500 over this roughly 3-year period. However, the increase in WPM stock has been far from consistent. 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, SCCO, and RIO, and even for the mega-cap 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?

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. However, the stock trades at about 48x consensus 2024 earnings, which we believe is somewhat high. We estimate Wheaton Precious Metals valuation at $40 per share, which is below the current market price. We will be revisiting our price estimate for WPM following the earnings release. 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 4/26/2024
[2] Cumulative total returns since the end of 2016

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