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Franco-Nevada (FNV) Down 11.6% Since Last Earnings Report: Can It Rebound?

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Zacks Equity Research
·4 min read
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It has been about a month since the last earnings report for Franco-Nevada (FNV). Shares have lost about 11.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Franco-Nevada due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Franco-Nevada Q3 Earnings & Sales Top Estimates, Up Y/Y

Franco-Nevada reported adjusted earnings of 80 cents per share in third-quarter 2020, up 48.1% from the prior-year quarter. Additionally, the bottom line surpassed the Zacks Consensus Estimate of 59 cents.

The company generated revenues of $279.8 million in the reported quarter, reflecting a year-over-year improvement of 18.6%. The top-line figure also beat the Zacks Consensus Estimate of $246 million. In the third quarter, 91.9% of revenues were sourced from gold and gold equivalents (73.7% gold, 9.3% silver, 7.6% platinum group metals and 1.3% from other mining assets) and 8.1% from energy (oil, gas and natural gas liquids).

The company sold 134,817 GEOs in the reported quarter, up from the prior-year quarter’s 133,219 GEOs. This year-over-year growth of 1.2% resulted from higher contributions from the Hemlo and Candelaria mines, offset by lower contributions from Cobre Panama and Sabodala.

During the reported quarter, adjusted EBITDA increased 22% to $235 million year over year.

In third-quarter 2020, the average gold price was $1,911 per ounce, 29.6% higher than the year-ago quarter. Silver prices averaged $24.39 per ounce in the quarter, up 43.3% year over year. Platinum prices went up 2.3% year over year to $903 per ounce, palladium prices jumped 41.6% year on year to $2,170 per ounce.

Financial Position

The company had $466.8 million cash in hand as of Sep 30, 2020, up from the $132.1 million reported as of Dec 31, 2019. It recorded an operating cash flow of $557.6 million in the first nine months of the current year, up from the $433.1 million witnessed in the comparable period last year.

Franco-Nevada is debt free and uses its free cash flow to expand the company’s portfolio and pay dividends. The company’s board has announced a quarterly dividend of 26 cents per share, payable on Dec 17 to shareholders of record as of Dec 3, 2020.

Guidance

The company now expects attributable royalty and stream sales from its mining assets to lie near the upper end of the prior guidance of 475,000 GEOs and 505,000 GEOs for the current year. The guidance considers the resumption of the Candelaria mine operation in the near term which is temporarily on hold due to labor strikes. Revenues from energy assets are anticipated to be at the higher end of the previous estimate of $60-$75 million in 2020. The WTI oil price and Henry Hub natural gas price are assumed to average $40 per barrel and $2.00 per mcf, respectively.

 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

At this time, Franco-Nevada has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Franco-Nevada has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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