Despite Rising Silver Prices, Silver Wheaton Falls

| About: Silver Wheaton (SLW)

Summary

Silver Wheaton didn't do well this year despite the rise in the price of silver.

The company faces additional audits by THE CGA.

What to expected from SLW's Q4 earnings report?

Silver The silver market started off the year on a positive note, but the same can't be said for shares of Silver Wheaton (NYSE:SLW), which lost roughly 14%, year to date. This could be related to the bearish sentiment in the markets. it could also be attributed to the latest news from SLW: The company provided an update on its Canada Revenue Agency issues and plans to release its earnings on March 16th. Let's see the recent news and what to expect from this silver and gold streaming company.

More audits to follow

There is more news for Silver Wheaton's investors regarding its tax issues with the Canada Revenue Agency: After filing an appeal for the CGA's tax assessment for 2005-2010, in which the company may have to pay a total of roughly $265 million in tax, interest and penalties, the CGA plans to audit SLW for 2011-2013. So this could open the door for additional taxes and fines to come. It's unclear about the timing or what and if the company have to pay taxes and fines to CGA, but this issue will continue to hover over SLW's head for the coming months. And this uncertainty doesn't help its stock or its investors' peace of mind. Besides that, Silver Wheaton will also release its Q4 earnings in mid-March.

Hitting attributed production goals

Even though the company added a couple of new streaming deals this year, Silver Wheaton didn't revise its annual guidance and stated back in Q3 that it still expects a gain of over 20% in production, year over year. Based on the performance in the first three quarters of the year and the initial guidance, here are the expected figures for Q4.

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Source: SLW and Author's calculations

As you can see above, if the company were to reach its attributed production guidance for the year -- and assuming that only 87% of the attributed production was sold - then SLW should present a 65% gain in gold sold and a nearly no change for silver. In total, the higher gold sales should more than offset the drop in precious metals prices so that revenue should rise by roughly 9%, year on year. More importantly will be what's next for SLW. The company is also likely to provide an update on its annual attributed production for the coming years after considering the additional streaming project that were added.

Market reaction - does an EPS surprise matter?

Currently, the market expects, SLW's EPS will be $0.13, which isn't far off the EPS recorded in previous quarters. But does the market react to the surprise in the EPS? The table below shows the EPS surprises and percent changes in SLW and silver prices on the day of the release and the following day.

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Source: Google finance and Nasdaq

As you can see, in three of the last four earnings releases the EPS came short of market expectations. But at face value the market doesn't react to the surprise in EPS - rather it reacts to the changes in the price of silver that lead the way for SLW's stock. So unless the EPS comes far off the mark by a hefty margin and not by a few cents, shares of SLW won't deviate from the direction of silver on that day.

Finally

Silver Wheaton's recent news about the CGA audit opens the door for additional concerns for its investors. The Q4 earnings report will be released in mid-March, but it isn't likely to have a big ripple effect on its stock unless the company comes with significant and unexpected news. It will, however, provide additional updates on its guidance for 2016 and what's the strategy of the company moving forward. For more please see: Silver Wheaton Is Not Solely Impacted By Silver

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.