JPMorgan Previews Precious Metals Q1 Earnings, Downgrades Agnico, Silver Wheaton

Shares of Agnico Eagle Mines Ltd (USA) AEM have gained 44 percent since January 19, while Silver Wheaton Corp. (USA) SLW share have jumped 52 percent. JPMorgan’s John Bridges downgraded the ratings for both the companies from Overweight to Neutral.

Analyst John Bridges considers both the stocks as “fairly valued,” taking gold price at $1,250/oz. He said, “We continue to feel that gold as an asset class makes sense given the uncertain global financial picture; however, after a quarter when some stocks have doubled or even tripled we feel that it may be prudent to take a few profits.”

Agnico

The price target for the company has been raised from $35 to $39. Bridges believes that Agnico’s focus on long-term reserve replacement and projects is the right thing to do. The company’s exploration efforts have yielded good results, resulting in an increase in the share price, even against declining gold prices.

Agnico’s 3-year guidance for ~1.5moz per annum appears conservative and “growth could come from several initiatives it is working on,” the analyst commented. He added, however, that the stock’s more than 20 percent outperformance of the HUI Index over the last twelve months makes it fully valued.

Silver Wheaton

The price target for Silver Wheaton has been reduced from $21 to $18. Bridges noted that the company’s shares had a great run until 2012 on the back of its preferred streaming model. He added, however, that Silver Wheaton’s rising exposure to silver in a weakening industrial environment was a negative.

Silver Wheaton’s shares have moved down in recent days due to a tax audit by the Canadian Revenue Agency. The analyst expects the company’s share price to remain under pressure until the issue has been resolved. The expectations of silver continuing to lag gold in 2016 and 2017 also act as a dampener.