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Sell Endeavour Silver Corp

- By Alberto Abaterusso

I would suggest holding Endeavour Silver Corp. (EXK) and taking some profit off the table when possible.

There are some weaknesses in the operations of the company that will affect the consolidated production for full fiscal 2018. These shortcomings are not reflected in the market value yet. That's why I think that the stock is overpriced according to the share price of $2.40 at market close as of Oct. 12, even though it is still below the 200- and 100-day simple moving average lines.

Let's see which vulnerabilities the mid-tier precious metals producer is experiencing at its three silver-gold underground mines in Mexico.

The El Compas mine is facing delays in the commercial production of the precious metal that should be reached sometime during the fourth quarter of 2018. At the Bolanitos mine, operating performances are declining due to a lower grade of mineral processed. The Guanacevi mine is also cause for concern due to a fall in the throughput that happened during the third quarter of 2018. The management is now anticipating an improvement in the last trimester, but that won't be enough to cancel out the negative effects on the consolidated production for the entire year of 2018.

Those issues have forced the management of the company to lower its guidance on the consolidated production. The management is now forecasting that Endeavour Silver Corp. will produce from 9.69 million to 10.64 million ounces of equivalent silver, a 5% decrease from the previous guidance for full fiscal 2018.

Lower throughput will also result in higher costs as fixed expenses will be spread over a thinner production base. A higher cost per ounce of metal sold together with a commodity predicted not to be particularly supportive until 2019 will likely impinge on the company's cash flows.

Endeavour is currently developing a mineral project that will culminate in the fifth mine of the company at the Terronera in the silver mining district of San Sebastian in Mexico. The miner is targeting to become a senior producer of silver.

The company has a market capitalization of approximately $309.97 million on the New York Stock Exchange. The price-book ratio is 2.07 versus an industry median of 1.74 and the EV-to-Ebitda ratio is 11.05 compared to an industry median of 9.3. The 52-week range is $1.94 to $3.35.

The recommendation rating is 2.4 out of 5. The average target price is $4.53 per share.

Disclosure: I have no positions in any security mentioned in this article.

This article first appeared on GuruFocus.