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Bull of the Day: Royal Gold (RGLD)

Tracey Ryniec

Royal Gold, Inc. (RGLD) is a way to capitalize on the rising gold and silver prices without actually owning mining stocks. This Zacks Rank #1 (Strong Buy) is expected to see big double digit earnings growth in Fiscal 2020.

Royal Gold is not a miner. It is a precious metals stream and royalty company which owns interests, as of Mar 31, 2019, on 191 properties on five continents. That includes interests on 43 producing mines and 17 development stage projects.

What's a metals stream?

From Royal Gold:

Precious metal streams are purchase agreements with mine operators that provide, in exchange for a lump sum advance payment, the right to purchase all or a portion of one or more metals produced from a mine, at a price determined for the life of the transaction by the purchase agreement.

What's a royalty?

From Royal Gold:

A royalty is the right to receive a percentage of the metal produced from a mineral property. Existing royalties can be acquired outright from either a mineral resource company or a private party; new royalties can be created by providing capital to an operator or explorer in exchange for a royalty.

Except for one joint venture property where Royal Gold conducts exploration, it does not conduct work on the properties in which it holds stream and royalty interests, and it is not responsible for contributing to exploration, operating, environmental or capital costs on those properties.

A Miss in the Fourth Quarter

On Aug 7, Royal Gold reported its fiscal fourth quarter 2019 results and missed on the Zacks Consensus by 3 cents. EArnings were $0.45 versus the consensus of $0.48.

It was the second miss in a row but investors in the gold miners aren't caring about the beat or miss on earnings right now. It's all about the rising metal price.

Revenue actually fell 0.5% in the quarter to $115.7 million but it paid dividends of $17.4 million, an increase of 6.1%.

The company was pleased with the fiscal year.

"Our underlying portfolio performed well, which allowed us to further strengthen the balance sheet and continue our commitment to paying a growing and sustainable dividend," said Tony Jensen, President and CEO.  

"We successfully resolved the long-running royalty calculation dispute on the world-class Voisey’s Bay operation, and brought the exciting new Khoemacau development project into our portfolio," he added.

Paid Off Debt in Fiscal 2019

During fiscal 2019, the company reduced its total debt by $136.5 million to $214.6 million.

As of June 30, 2019, it had added to its cash on hand by $30.7 million to $119.5 million over fiscal 2018.

On June 17, 2019, it also repaid $370 million of outstanding principal plus accrued interest on its 2.875% Convertible Senior Notes ("Notes") using cash and $220 million drawn under the Revolving Credit Facility.

Analysts Raise Fiscal 2020 and Fiscal 2021 Estimates

The analysts are bullish on the company's outlook.

Earnings are expected to rise 77.9% in fiscal 2020 as 4 estimates were revised higher in the last 2 months. That pushed the Zacks Consensus Estimate up to $2.58 from $2.08 during that time.

Two estimates were also revised for fiscal 2021 which pushed the Zacks Consensus up to $2.52 from $2.18 in the prior 60 days. That's actually an earnings decline of 2.1% but it's still early to be projecting out to fiscal 2021 which is nearly 2 years away.

Shares Soar with Gold Back in Favor

2019 has turned out to be a bullish year for gold bugs as the yellow metal has hit 6-year highs.

Royal Gold shares have jumped 65.2% year-to-date but saw a pullback during the recent "great rotation" trade of 8.3%.

They are still expensive, with a forward P/E of 48.2, but you are paying for the big earnings growth.

Shareholders get a dividend, currently yielding 0.9%.

Royal Gold isn't the only gold stock to be a Zacks Rank #1 (Strong Buy).

There are currently 8 in the industry out of 34 companies with Zacks Ranks. AngloGold Ashanti Limited (AU), Kinross Gold (KGC) and Alamos Gold (AGI) are three others which also have the top Rank.

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