Is AEM Stock a Screaming Buy After the 39% YTD Price Rally?
In This Article:
Key Takeaways
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Thanks in part to AEM's strong earnings performance, company shares are up 38.6% this year.
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That compares to the 17.2% gold mining industry rise during the same period, marked by record gold prices.
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Agnico Eagle Mines Limited’s AEM shares have shot up 38.6% this year, outperforming the Zacks Mining – Gold industry’s rise of 17.2%. The rally has been driven by a spike in gold prices and AEM’s forecast-topping earnings performance.
Technical indicators for Agnico Eagle show that AEM has been incessantly trading above the 200-day simple moving average (SMA) since March 4, 2024. However, the stock is currently trading below the 50-day SMA. Nevertheless, the 50-day SMA continues to read higher than the 200-day moving average since the golden crossover on Jan. 1, 2024, indicating a bullish trend.
Agnico Eagle’s Shares Trades Below 50-Day SMA
Image Source: Zacks Investment Research
AEM is currently trading at a roughly 15% discount to its 52-week high of $89 reached on Oct. 30, 2024.
Let’s take a look at AEM’s fundamentals to better analyze how to play the stock.
AEM Stock Poised to Ride on Key Project Execution
Agnico Eagle is focused on executing projects that are expected to provide additional growth in production and cash flows. It is advancing its key value drivers and pipeline projects, including the Odyssey project in the Canadian Malartic Complex, Detour Lake, Hope Bay and San Nicolas. At the Kittila mine — the largest primary gold producer in Europe — the company continues to expand the exploration drilling of Main and Sisar Zones to take advantage of better grades.
The Hope Bay Project, with proven and probable mineral reserves of 3.4 million ounces, is expected to play a significant role in generating cash flow in the coming years. The Meliadine phase 2 mill expansion project was completed in the second quarter of 2024, with mill capacity set to increase to 6,000 tons per day by the end of 2024.
The merger with Kirkland Lake Gold established Agnico Eagle as the industry's highest-quality senior gold producer. The integrated entity now has an extensive pipeline of development and exploration projects to drive sustainable growth and the financial flexibility to fund a strong pipeline of growth projects.
AEM’s Solid Financial Health & Capital Discipline Bode Well
AEM has a strong liquidity position and generates substantial cash flows, which allow it to maintain a strong exploration budget, finance a strong pipeline of growth projects, pay down debt and drive shareholder value. During the first quarter of 2024, Agnico Eagle upsized its revolving credit facility to $2 billion, significantly increasing its available liquidity. Its operating cash flow jumped roughly 116% year over year to record $1,084.5 million in the third quarter. AEM also generated solid third-quarter free cash flows of $620.4 million, backed by the strength in gold prices and strong operational results. It remains focused on paying down debt using excess cash, with net debt reducing by $429.7 million sequentially to $490 million at the end of the third quarter.
Higher gold prices should boost AEM’s profitability and drive cash flow generation. Gold has been among the best-performing assets this year. Gold prices have rallied roughly 25% this year, driven by strong demand from central banks, a dovish Fed interest rate outlook, global uncertainties and a surge in safe-haven demand thanks to increased tensions in the Middle East. After the pullback due to a rally in the U.S. dollar following Trump's win in the U.S. Presidential election, gold prices regained strength as the Federal Reserve cut interest rates by a quarter point. While a strengthening U.S. dollar is weighing on the yellow metal of late, prices are likely to gain support on prospects of another rate cut in December.
AEM offers a healthy dividend yield of 2.1% at the current stock price. It has a five-year annualized dividend growth rate of 16.8%. AEM has a payout ratio of 45% (a ratio below 60% is a good indicator that the dividend will be sustainable). The company's dividend is perceived to be safe and reliable, backed by strong cash flows and sound financial health.