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  • Silver Wheaton Beats Expectations, But There's Still Trouble 0 comments
    Mar 21, 2014 10:42 AM | about stocks: SLW

    Silver Wheaton beat Wall Street's expectations yesterday, but that doesn't mean everything is rainbows and unicorns. Unlike most other silver companies, Silver Wheaton, a precious metals streaming company, has more flexibility to diversify their company. Last year they increased their sales of gold from 9 percent of sales to 23 percent.

    But it would be naïve of any of us to think that their profits aren't still heavily reliant on silver prices. Yesterday the company reported a 47 percent fall in quarterly profit. That fall was in spite of a 17 percent rise in silver and silver equivalents production. The culprit was the precious metal itself-silver prices fell 33 percent on average for the quarter.

    The freefall in precious metals over the last year can be mainly attributed to the Federal Reserve's stimulus tapering. Throughout the year, prices hung on every word that came out of Ben Bernanke's mouth, so it may also not be surprising that the market may still have a rough road ahead as Janet Yellen is now looking toward the next step with interest rate hikes.

    The silver lining of all this is that the company still beat analysts' expectations, reporting $0.26 earnings per share to their consensus estimate of $0.25. They traded up 0.36% Thursday and a number of analysts upgraded on SLW shares. While Zack's merely upgraded them from underperform to neutral with a $25.90 target price, the company has a consensus "buy" rating with a target price of $29.25.

    Looking to the future:

    • They're doing enough to get by now, and
    • Production at Silver Wheaton is estimated to increase its silver equivalent production by about 45% by 2017
    • But unless the company does something to hedge itself against the precious metals market, more production may not be enough make up for the continuous decline of market prices, especially as the rest of the economy continues to grow.

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

    Stocks: SLW
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