Agnico Eagle Downgraded to Strong Sell - Analyst Blog

On Jun 26, Zacks Investment Research downgraded Agnico Eagle Mines Limited (AEM) to Zacks Rank #5 (Strong Sell).

Why Downgraded?

Agnico-Eagle's earnings estimates and share prices witnessed a downward trend after reporting disappointing first quarter 2013 results on Apr 25. Earnings estimates for this Canada-based gold mining company have been on the downside due to its high operating costs across a number of mines and a weak gold price environment.

The company's adjusted earnings (excluding one-time items other than stock-based compensation expenses) of 24 cents per share lagged the Zacks Consensus Estimate by 10 cents. Profit for the first quarter slid roughly 70% on lower gold prices and production as well as higher cash costs.

The company delivered negative earnings surprises in the last two quarters with an average of 6.13% for the last four quarters. The company's long-term estimated EPS growth rate is 2.3%. Shares of Agnico Eagle also attained a 52-week low on Jun 26 of $25.00.

Payable gold production declined in the quarter, mainly due to the suspension of the Creston Mascota heap leach facility. While Agnico-Eagle achieved record quarterly throughput at its Meadowbank mine in northern Canada, its Kittila mine in northern Finland saw a decline in payable gold production in the quarter. The company backed its production guidance for the full year

Moreover, one of Agnico-Eagle's main issues has been persistently high operating costs across a number of mines. Total cash cost jumped around 25% year over year in the first quarter, mainly due to lower by-product revenue at LaRonde and lower grades at Meadowbank.

Agnico-Eagle raised its cash cost guidance for 2013 to a range of $735-$785 per ounce from earlier expectation of $700-$750 to reflect weak metals prices and production changes at Goldex and Kittila mines. The company is exposed to a weak gold price environment, which may continue to affect its bottom line.

The Zacks Consensus Estimate for 2013 has gone down 45% to 95 cents per share as most estimates were revised lower over the last 60 days. Similarly, the Zacks Consensus Estimate for 2014 has also decreased 21% to $1.63 per share.

Other Stocks to Consider

Not all stocks in the industry are performing as poorly as Agnico Eagle. Brigus Gold Corp. (BRD) with a Zacks Rank #1 (Strong Buy) and Claude Resources, Inc. (CGR) and Lake Shore Gold Corp. (LSG) carrying a Zacks Rank #2 (Buy) are some stocks worth considering.