Time To Buy Silver Wheaton, Says Barclays

• The share price of Silver Wheaton Corp. (USA) SLW has appreciated 17.3 percent over the past month, from a low of $11.47 on October 1.
• Barclays’ Farooq Hamed has initiated coverage of the company with an Overweight rating and a price target of $18.
• Although the Canada Revenue Agency issue could lead to an overhang on the stock, Hamed believes that most of the “worst case scenario” associated with the tax issue is already priced in.

Analyst Farooq Hamed believes that Silver Wheaton “has a high quality stream portfolio that can grow annual earnings and cash flows organically at spot commodity prices,” while its improving balance sheet and significant available liquidity” would allow for “greater potential growth through acquisitions.”

With the current spot commodity prices and assuming that the company does not undertake any further acquisitions, Hamed expects Silver Wheaton’s underlying business to general annual EPS and CFPS growth at 3.7 percent and 3.9 percent, respectively, over the coming five years.

“Coupling this decent growth rate with an improving balance sheet that we expect will be in a net cash position by 2017, barring any further investments, we believe SLW represents an attractive option in the embattled Canadian Metals and Mining sector,” the Barclays report said.

On the other hand, Hamed does not expect a quick resolution of the Canada Revenue Agency (CRA) tax reassessment issue. However, the “worst case scenario” that the CRA would successfully reassess the company’s taxes since 2005 to the present using a higher tax rate appears to mostly have already been priced into the stock.