Franco-Nevada Corporation FNV seems to be an attractive pick now backed by record third-quarter results, upbeat outlook and Cobre Panama project. Further, acquisitions and solid performance of its energy assets remain tailwinds.
These factors have instilled investor confidence as evident from upward revisions of 12% and 10% in the Zacks Consensus Estimate for current and next-year earnings, respectively, over the past 30 days. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Moreover, shares of Franco-Nevada have gained 41% so far this year compared with the industry’s growth of 37%.
Factors That Make Franco-Nevada an Attractive Pick
Earnings Growth: The company recorded an earnings growth rate of 16.7% over the last five years, outperforming the industry’s 10.8%. This momentum is likely to sustain, as reflected by the company’s projected earnings per share growth of 46.15% and 26.32% for fiscal 2019 and 2020, respectively.
The company has an estimated long-term earnings growth rate of 4%.
Stellar Q3 Results: Franco-Nevada Corporation reported record adjusted earnings of 54 cents per share in third-quarter 2019, up 86% from the prior-year quarter. The company also generated record revenues of $235.7 million in the reported quarter, reflecting year-over-year improvement of 38%. The company beat the Zacks Consensus Estimate on both counts. The company sold a record 133,219 Gold Equivalent Ounces (GEOs) in the quarter, up 11% from the prior-year quarter.
Upbeat 2019 Outlook: For 2019, Franco-Nevada anticipates to be close to the high end of its guidance range of 490,000-500,000 GEOs. The company also projects generating revenues from its energy assets at the higher end of range of $100 to $115 million.
Strong Leverage: Franco-Nevada’s debt/equity ratio is 5.0%, much lower than the industry average of 22.2%. The company is well poised to capitalize on prospects on the back of its strong financial position.
Return on Equity (ROE): The company’s ROE of 5.8% is higher than the industry’s 4.3%, highlighting the company's tactical efficiency in utilizing shareholders' funds.
Positive Earnings Surprise History: The company has an average positive earnings surprise history of 11.75% in the trailing four quarters.
Growth Drivers in Place
Franco-Nevada strives to generate revenues from precious metals over the long haul, which includes gold, silver and PGM. With precious metals generating around 84.1% of revenues during third-quarter 2019, the company has the flexibility to consider diversification opportunities outside of the precious metals' space and increase exposure to other commodities while maintaining long-term target. Franco-Nevada is well positioned to gain on the back of a healthy portfolio of streaming and royalty agreements put in place years ago.
The Cobre Panama project commenced commercial production in September 2019 — a month earlier than expected. The company anticipates the project to be on track for deliveries toward high end of its guidance at 20,000-40,000 GEOs. Growth is expected thereafter as the Cobre Panama project ramps up. In fact, for 2023, Franco-Nevada Corporation guides 570,000-610,000 GEOs backed by the Cobre Panama project.
In October 2018, Franco-Nevada contributed $214.8 million to close its previously-announced transaction with Continental Resources, Inc. CLR to acquire Oil & Gas mineral rights in the SCOOP and STACK plays of Oklahoma — two of the most economic and attractive plays in North America. It has also committed, subject to satisfaction of agreed upon development thresholds, to spend up to $300 million over the next three years to acquire additional royalty rights through a newly-formed company.
On Jul 22, 2019, Franco-Nevada acquired a 1% overriding royalty interest covering approximately 350,000 acres in the Marcellus from Range Resources Corporation RRC for $300 million. The royalty applies to existing production and future development from the Marcellus formation, and future potential development from the Utica and Upper Devonian formations. With the continued development of its U.S. oil & gas assets, the company expects energy assets to contribute $140-$160 million by 2023.
Another Key Pick
Another top-ranked stock in the Basic Materials space is Kirkland Lake Gold Ltd. KL, which sports a Zacks Rank #1. Kirkland Lake Gold has a projected earnings growth rate of 96.6% for the ongoing year. The company’s shares have rallied 80% year to date.
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