U.S. Markets closed

Wheaton Precious Metals Corp (TSE:WPM): Financial Strength Analysis

Luis Baughman

Stocks with market capitalization between $2B and $10B, such as Wheaton Precious Metals Corp (TSX:WPM) with a size of CA$12.31B, do not attract as much attention from the investing community as do the small-caps and large-caps. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. Let’s take a look at WPM’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into WPM here. See our latest analysis for Wheaton Precious Metals

Does WPM generate enough cash through operations?

WPM has shrunken its total debt levels in the last twelve months, from US$1.19B to US$770.00M , which comprises of short- and long-term debt. With this debt repayment, WPM currently has US$98.52M remaining in cash and short-term investments , ready to deploy into the business. Moreover, WPM has produced US$538.81M in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 69.98%, signalling that WPM’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In WPM’s case, it is able to generate 0.7x cash from its debt capital.

Can WPM pay its short-term liabilities?

Looking at WPM’s most recent US$12.14M liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$103.42M, with a current ratio of 8.52x. Though, anything above 3x is considered high and could mean that WPM has too much idle capital in low-earning investments.

TSX:WPM Historical Debt May 9th 18

Does WPM face the risk of succumbing to its debt-load?

With debt at 15.72% of equity, WPM may be thought of as appropriately levered. This range is considered safe as WPM is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if WPM’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For WPM, the ratio of 12.04x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as WPM’s high interest coverage is seen as responsible and safe practice.

Next Steps:

WPM’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure WPM has company-specific issues impacting its capital structure decisions. You should continue to research Wheaton Precious Metals to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for WPM’s future growth? Take a look at our free research report of analyst consensus for WPM’s outlook.
  2. Valuation: What is WPM worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether WPM is currently mispriced by the market.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.