Bay Street Analysts Still Like Silver Wheaton

Shares of

plunged to a new 52-week low of $15.18 on Tuesday after the company received a proposal letter from the Canadian Revenue Agency (CRA) in which it argued the company's profits earned by foreign subsidiaries should be subject to tax in Canada. The CRA noted that Silver Wheaton's tax obligation during the 2005 to 2010 time period should be increased by $567 million on top of transfer penalties of $57 million. Taxation years after 2010 remain open to an audit. In a report published Tuesday, Toronto-based CIBC analyst Cosmos Chiu suggested that the market has already priced in a "worst-case scenario" as the CRA's initial audit notice actually dates back to March 2012. Chiu said that based on a 10 percent discount rate, shares are trading at 1.7x P/NAV, in-line with its peers. Shares remain Sector Outperform with an unchanged $31 price target.

Toronto-based BMO Capital Markets analyst Andrew Kaip also commented on Silver Wheaton's CRA letter. According to Kaip, Silver Wheaton is likely to "vigorously" defend its position which could result in a "protracted timeframe. Nevertheless, Kaip added his "mixed" views. On the positive end, the CRA's announcement now provides clarity on the potential impact to the company. On the other hand, the CRA's reassessment could have implications for income earned after 2010, which could be around $440 million. Kaip further suggested that when taking into account the 11 percent decline in share prices on Tuesday, the negative impact of the CRA letter is now "imputed" in its share price. Shares remain Outperform rated with a price target lowered to $20 from a previous $25 as owning shares provides investors with exposure to superior growth and higher operating margins versus its silver producing peers.