Silver Wheaton's Disappearing Growth

In spite of average silver prices 22% higher than the previous quarter, Silver Wheaton (SLW) reports flat earnings for the first quarter of 2008. Revenues were up 11% over Q1, 2007 but 2.6% less than Q4, 2007. Especially revealing, silver ounce sales for the first quarter were down almost 16% from Q1, 2007 and 20% below the 4th quarter. Net earnings per share (fully diluted) came in at 11¢, a penny higher than the first and last quarters of 2007. Only the higher silver prices saved SLW from a truly devastating quarter.

Silver Wheaton is a company that investors and analysts have been watching for 30% to 40% annual revenue and earnings growth rates. However, over the last eight quarters, total ounces of silver sold have been trending downward and earnings per share have been flat, bouncing between 9¢ and 11¢ per share. Over the last few quarter the management has stated that silver shipments from the mines have been delayed from planned, but the delayed silver does not seem to be adding to silver volumes in the following quarters. For this quarter the company again states that about 460,000 ounces from the “plan” were delayed or the ore mined was of lower silver content.

Silver Wheaton has a unique business model that allows it to have a high percentage of revenues reach the bottom line. The company has low overhead and pays no taxes. The current problem is that the share are priced like the company is growing 40% a year, and they are not making those numbers. Unless the company can restart the growth of silver delivery, you are left with a stock which is primarily driven by the rise and fall of silver prices.

Silver Wheaton is projecting 13 to 15 million ounces of silver sold this year vs. 13 million in 2007. Their projections for 2009 and 2010 are 19 million oz. and 25 million oz. Projections are big growth, but now I think the company needs to show better quarter to quarter improvement. Today the share price is showing a pretty big drop, but I would be very cautious of SLW unless it falls quite a bit lower (I am thinking $10) or starts showing some nice quarterly growth.

Disclosure: I currently do not have a position in SLW.

Comments

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I bought SLW at 10.50 good price year a half ago, sold half at 16.42 and the other half at 16.24 at the first of the year. Was going to get back in, but like the comments posted, I dont think this company has it all together right now. Will get back in under 10 myself.