Near High Levels, What’s Next for WPM Stock?

Wheaton Precious Metals stock has fared reasonably well this year, rising by about 29% year-to-date,  ahead of the S&P 500. There have been a couple of factors helping Wheaton. Firstly, prices for gold and silver have been rising this year, driven by easing inflation, uncertain remarks by the Fed, and geopolitical concerns given the ongoing wars between Russia – Ukraine. Moreover, Wheaton has also moved to add two new metal streams and royalties in a move that could bolster production and revenues in the coming  years. The recently added assets includes an expansion to the existing stream on Rio2’s Fenix project and a new gold stream on Montage’s Kone project. 

Wheaton’s Q3 results were also reasonably strong. Adjusted earnings stood at $0.34 per share, while revenue grew by about 38% year-over-year to $308 million. Wheaton is on track for meeting its annual production guidance range for 2024 of 550,000 to 620,000 gold equivalent ounces, with quarterly production consistent with the comparable period of the prior year, as lower production from Salobo and Constancia was largely offset by higher production from Peñasquito. Overall, average realized gold price for the quarter came in at $2,491 per ounce, up 28% versus last year, while its average realized silver price came in at $29.71, up 25% versus last year.

The increase in WPM stock over the last 4-year period has been far from consistent, although annual returns were less volatile than the S&P 500. Returns for the stock were 4% in 2021, -8% in 2022, and 28% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is less volatile. And it 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 around rate cuts and multiple wars, 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?

The company generated record quarterly operating cash flows of $254 million. 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) could stand at over 800,000 GEOs by 2028. This is likely to be driven by anticipated production growth from Salobo, Antamina, Voisey’s Bay, and Marmato. Price realizations for precious metals could also move higher in the long term, being a safe haven amidst political uncertainties. That being said, we think that WPM’s stock has factored in the upside and is correctly valued currently.  We estimate Wheaton Precious Metals valuation at $63 per share, around the current market price.

[1] Returns as of 11/20/2024
[2] Cumulative total returns since the end of 2016

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