Royal Gold, Inc. RGLD seems to be well poised to gain from the recent rally in gold prices and investment in mines that are significant revenue generators. Further, low debt levels and strong earnings growth projections are tailwinds.
The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Factors That Make Royal Gold an Attractive Pick
Price Performance: Shares of Royal Gold have gained 38.4% in the past year compared with the industry’s growth of 33.1%.
Earnings Growth: The company recorded an earnings growth rate of 13.8% over the last five years. For fiscal 2020, the Zacks Consensus Estimate is at $2.66, indicating year-over-year growth of 83.5%. The estimate for fiscal 2021 is currently pegged at $2.83, projecting year-over-year growth of 6.58%.
The company has an estimated long-term earnings growth rate of 10%.
Strong Organic Growth: Royal Gold’s revenues witnessed a 12% compounded annual growth rate over the last five-year period ended fiscal 2019. The company’s projected sales growth rate of 19.7% for fiscal 2020 indicates continued upward momentum in revenues.
Notably, Royal Gold’s investments in the Mount Milligan, Andacollo, Pueblo Viejo, Wassa, Rainy River, Peñasquito and Cortez properties generated approximately 76% of revenues for fiscal 2019. The company expects these properties and others to continue generating significant revenues in fiscal 2020 and beyond.
Strong Leverage: Royal Gold’s debt/equity ratio is 7.4%, significantly lower than the industry average of 22.2%. The strong financial health of the company will likely pose it well to capitalize on growth opportunities.
These factors have secured analysts’ confidence, as reflected by the 2% and 15% upward revision in the Zacks Consensus Estimate for the current fiscal and next-fiscal earnings, respectively, over the past 60 days.
Growth Drivers in Place
Royal Gold settled its long-standing litigation with Vale S.A VALE on their world-class Voisey's Bay mine in Newfoundland and Labrador. The royalty on the production of nickel, copper, cobalt and other minerals from the Voisey’s Bay mine is directly owned by the Labrador Nickel Royalty Limited Partnership (“LNRLP”), in which the company’s wholly-owned indirect subsidiary is the general partner and 90% owner. Vale will invest $1.7 billion to develop the underground resources, which will extend the mine life from 2023 to 2034.
The resolution of the dispute gives Royal Gold the exposure to a world-class operating asset that ensures a steady stream of royalty revenues. The company believes the Voisey's Bay will once again be among its top 10 revenue generators.
Royal Gold added the high-quality long-life Khoemacau development project to its stream portfolio in February 2019. The silver mine life-purchase agreement with Khoemacau Copper Mining Limited (“KCM”) highlights the purchase and sale of silver produced from the Khoemacau Copper Project in Botswana. Royal Gold will receive 80% of the silver production from the Khoemacau project. The company expects silver deliveries of 1.5 million ounces per annum at 80% stream rate, with initial deliveries probably starting in the first half of calendar-year 2021.
Gold prices were up 19% in 2019 and 1.5% so far this year. The trade war, slowdown in manufacturing activity and rate cuts collectively boosted the yellow metal's investment appeal. The combination of lower mined gold supply and higher demand, and geopolitical tensions are likely to drive prices north.
Other Stocks to Consider
Some other top-ranked stocks in the sector are Osisko Gold Royalties Ltd OR and Pretium Resources Inc. PVG, each sporting a Zacks Rank of 1, at present.
Osisko Gold has a projected earnings growth rate of 15.96% for the current year. The company’s shares have gained 5.8% over the past year.
Pretium Resources has an estimated earnings growth rate of a whopping 107% for the ongoing year. Its shares have appreciated 58.7% in a year’s time.
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