March 27, 2013
Recommendation: D-rated Sell
Welcome to the Stock of the Day for March 27, 2013.Last week, Silver Wheaton Corp. (SLW) grabbed headlines after it announced that 2012 was a banner year for silver production. Shares have been on the up ever since, so with the company targeting a steep production increase by 2017, does SLW make a good long-term metals play? Find out today.
Company Profile: Silver Wheaton is the world's largest metal streaming company in the world and makes 95% of its revenue from the sale of silver, which it buys from mines that need financing in long-term contracts. Currently, the company has 19 silver and precious metals purchase agreements around the world. Silver Wheaton's portfolio of assets includes silver streams on Goldcorp's Penasquito mine in Mexico and Barrick Gold's Pascua-Lama project on the border of Chile and Argentina.
Industry Breakdown: The Silver industry is competitive, with 40 unique players to date. Of those, Silver Wheaton is the largest. Silver Wheaton also stands out in terms of its fundamental health, with highly ranked sales growth and long-term growth rate (both seventh), earnings growth (sixth) and return on equity (second). Finally, SLW currently yields 0.09%, making it the fourth most generous dividend in the industry. Right now, Silver Wheaton's biggest competitor is Coeur d'Alene Mines Corp., which develops mining properties primarily in North and South America. CDE is currently D-rated, and as I'll discuss shortly, so is SLW. So if you're looking for profitable metals companies, I'd skip these two entirely and explore steel companies Worthington Industries Inc. (WOR), Sutor Technology Group (SUTR) and Grupo Simec S.A.B. (SIM).
Dividend Buzz: Speaking of dividends, SLW goes ex-dividend on Thursday, March 28. Shareholders of record will receive $0.14 per share on April 12. This quarter's dividend represents a 100% hike over the $0.07 per share paid by the company last quarter—that's because the company pegs its dividend to 20% of operating cash generated in the last quarter. However, this also means that Silver Wheaton's dividend fluctuates from quarter to quarter; the previous dividend represented a 30% cut over the prior quarter, when the company paid out $0.10 per share. So if you're looking for steady dividend increases, look elsewhere.
Current Ratings: Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. While SLW may be at the top of the industry, that's not saying a whole lot. For the past 12 months, SLW has fluctuated between a hold and a sell. Shareholders can thank the company's shaky fundamentals and lackluster institutional buying pressure for that. When it comes to Silver Wheaton's financial statements, it really needs to work on its operating margin growth (C), cash flow (D) and its track record of beating analyst estimates (C). The company's inability to grow earnings quarter after quarter also has analysts erring on the side of caution when it comes to earnings revisions (D). So this Moderately Aggressive stock currently receives a C for its Fundamental Grade and a D for its Quantitative Grade.
Bottom Line: As of this posting, March 27, I consider SLW a D-rated sell.
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