Agnico Eagle: Overvalued gold stock, ready to tumble
Agnico Eagle Mines (AEM) is a Canadian precious metals explorer, producer and trader with operations across North America and Europe. I’m bearish on the title.
A principal component analysis suggests that the stars are not exactly aligned for Agnico’s stock. Mining stocks are often correlated with expected GDP growth, corporate earnings growth and inflation.
Agnico enters 2022 with a downward revision to GDP growth of nearly 10%. The market would have priced the stock over previous estimates, and recent downgrades could mean we’re looking at an overvalued stock here.
Additionally, gold prices have failed to live up to expectations during the last inflationary environment, and the price of the commodity may be rigid on the downside, which means that futures prices could exceed a decline in fair value once inflation subsides; it would seriously hurt the company’s profits.
A lingering issue for Agnico is rising business input costs, with total operating expenses increasing 138.40% year-over-year. It’s a bigger problem than what it looks like. As I mentioned before, I think gold prices will lag inflation through 2022, and that could happen while we’re still in a labor crisis, which which means that input costs are unlikely to decline with the value of mining company inventories.
Agnico has lost a lot of money on acquisitions and expansions of existing mines lately. The company recently jointly acquired Osisko in Quebec for C$3.9 billion, giving it access to easy-to-mine gold reserves. Agnico also spent nearly half a billion dollars to access 545,000 ounces of gold per year at Canadian Malartic and expanded its Kittila mine in Finland to reach a processing capacity of 2 million ounces of gold per year. year.
Although these acquisitions may add value to the share price in the long term, there is a risk that they will be dilutive in the short term. It is often observed that mining stocks lose value when the underlying company increases its exploration budget, and these prices only really retrace when the acquired assets turn positive.
A second issue here is that these are gold properties. We all have a bit of doubt in our minds regarding the future of gold, with crypto playing its role as a hedging vehicle and the metal itself losing some of its appeal as a luxury item in recent years; therefore, I think many investors doubt the terminal value of recent Agnico acquisitions.
Some mining stocks could be set for their last hurray in early 2022, but Agnico is heavily overvalued relative to the sector.
According to Agnico’s P/E ratio, the stock is 24.42% overvalued relative to its peers, and that doesn’t read well considering Agnico’s earnings-per-share ratio is up 81%. .12 slower than its share price.
Agnico is also struggling to match its stock price to sales; according to the price-to-sales ratio, the stock is 3.37x overvalued relative to convention and 1.08x relative to the sector.
The Taking of Wall Street
On Wall Street, Agnico has a moderate buy consensus rating, based on five buys and three takes, over the past eleven months. Agnico’s average price target of $65.02 implies upside potential of 22.4%.
Problems arise with declining inventory values and continuing rising input costs, which could cause problems for Agnico. The company’s recent acquisitions are not necessarily as accretive as they appear. From a valuation perspective, AEM stock is significantly overvalued relative to its peers.
Disclosure: At the time of publication, Steve Gray Booyens had no position on any of the stocks mentioned in this article.
Disclaimer: The information in this article represents the views and opinions of the author only, and not the views or opinions of TipRanks or its affiliates. Read the full disclaimer >
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.