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Franco-Nevada Shares Up 20% YTD: What's Driving the Stock?

Zacks Equity Research

Shares of Franco-Nevada Corporation FNV have rallied 20% year to date, outperforming the industry’s growth of 8.9%.  Meanwhile, the S&P 500 declined 10.9% over the same period.

Franco-Nevada has a market cap of roughly $23.6 billion. Average volume of shares traded in the past three months was around 1,229K. The company has a long-term estimated earnings per share growth rate of 4%. It has a trailing four-quarter positive earnings surprise of 18.8%, on average.

Let’s delve deeper and analyze the factors driving the stock.

Driving Factors

Franco-Nevada seems to be on a promising long-term trajectory driven by a healthy portfolio of streaming and royalty agreements put in place years ago. One of the inherent strengths of Franco-Nevada’s business model is the diversification of portfolio. Two of its assets, Candelaria and Antapaccay, contributed 12% each to its 2019 revenues followed by Cobre Panama with a contribution of 8% — a combined total of 32%. It has operator diversification as well.

Given its continued focus on cost management, Franco-Nevada continues to generate high margins. The cash costs per GEO (Cost of sales, less depletion and oil and gas costs, divided by gold equivalent ounces) was at $266 in 2019, seeing a CAGR of 3% over the 2015-2019 timeframe. During this time, its margins have witnessed a CAGR of 5%. As gold prices continue to rise this year fueled by the slowdown in manufacturing activity, rate cuts, geopolitical tensions, and apprehensions regarding the coronavirus outbreak, it is likely to result in higher margins for Franco-Nevada.    

The company’s strong financial and liquidity positions it well to sail through global uncertainty on account of the coronavirus pandemic. It also allows the company to make further investments to grow the diversified asset portfolio. The Cobre Panama project is anticipated to be a key catalyst in the years to come.

Zacks Rank & Other Stocks to Consider

Franco-Nevada currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the basic materials space are Kinross Gold Corporation KGC, The Scotts Miracle-Gro Company SMG and Novagold Resources Inc. NG. While Kinross Gold and Scotts-Miracle-Gro sport a Zacks Rank #1 (Strong Buy), Novagold Resources carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kinross Gold has a projected earnings growth rate of 41.2% for the current year. The company’s shares have surged 30% so far this year.

The Scotts Miracle-Gro Company (SMG) has an estimated earnings growth rate of 15.9% for fiscal 2020. Its shares have rallied 12% year-to-date.

Novagold Resources has an expected earnings growth rate of 11.1% for fiscal 2020. The company’s shares have appreciated 29% so far this year.

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