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AEM Trades at Premium Valuation: Buy, Sell or Hold the Stock?
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Agnico Eagle Mines Limited (AEM - Free Report) is currently trading at a forward price/earnings of 22.24X, a roughly 52% premium to the Zacks Mining – Gold industry average of 14.59X, and higher than its five-year median.
Image Source: Zacks Investment Research
AEM's shares have performed impressively on the bourses thanks to its forecast-topping earnings performance, riding on higher realized gold prices and strong production. Its shares have rallied 20.9% over the past six months, topping the industry’s 0.1% decline and the S&P 500’s increase of 0.3%. Its gold mining peers, Barrick Gold Corporation (GOLD - Free Report) and Newmont Corporation (NEM - Free Report) have lost 11.5% and 19.2%, respectively, while Kinross Gold Corporation (KGC - Free Report) has gained 13.5%, over the same period.
AEM’s 6-month Price Performance
Image Source: Zacks Investment Research
Agnico Eagle has been trading above the 200-day simple moving average (SMA) since March 4, 2024. The stock is also currently trading above the 50-day SMA. The 50-day SMA continues to read higher than the 200-day SMA, indicating a bullish trend.
Agnico Eagle’s Shares Trade Above 50-Day SMA
Image Source: Zacks Investment Research
AEM’s lofty valuation may not present a compelling value proposition at these levels. Let’s take a look at its fundamentals to better analyze how to play the stock.
Advancement of Key Projects to Incite AEM’s Growth
Agnico Eagle achieved a record annual gold production of 3,485,336 ounces in 2024, driven by higher output from Meadowbank, Canadian Malartic and Macassa. It is focused on executing projects that are expected to provide additional growth in production and cash flows. It is advancing its key value drivers and pipeline projects, including the Odyssey project in the Canadian Malartic Complex, Detour Lake, Hope Bay, Upper Beaver and San Nicolas.
The Hope Bay Project, with proven and probable mineral reserves of 3.4 million ounces, is expected to play a significant role in generating cash flow in the coming years. The processing plant expansion at Meliadine was completed and commissioned in the second half of 2024, with mill capacity expected to increase to roughly 6,250 tons per day in 2025.
The merger with Kirkland Lake Gold established Agnico Eagle as the industry's highest-quality senior gold producer. The integrated entity now has an extensive pipeline of development and exploration projects to drive sustainable growth and the financial flexibility to fund a strong pipeline of growth projects.
AEM’s Solid Financial Health Supports Capital Allocation
AEM has a strong liquidity position and generates substantial cash flows, which allow it to maintain a strong exploration budget, finance a strong pipeline of growth projects, pay down debt and drive shareholder value. During 2024, Agnico Eagle upsized its revolving credit facility to $2 billion, significantly increasing its available liquidity. Its operating cash flow jumped roughly 55% year over year to record $1,132 million in the fourth quarter of 2024. AEM also generated solid fourth-quarter free cash flows of $570 million, up around 89% year over year, backed by the strength in gold prices and strong operational results. It remains focused on paying down debt using excess cash, with net debt reducing by $273 million sequentially to $217 million at the end of the fourth quarter. It reduced net debt by $1,287 million in 2024. AEM also returned around $920 million to shareholders through dividends and repurchases last year.
Higher gold prices should boost AEM’s profitability and drive cash flow generation. Gold has been among the best-performing assets in 2024. Gold prices rallied roughly 27% last year, driven by strong demand from central banks, monetary easing in the United States, global uncertainties and a surge in safe-haven demand thanks to increased tensions in the Middle East and Russia. Gold prices are shooting up this year as the intense U.S.-China tariff war has boosted safe-haven demand for bullion. Prices hit a record high of $2,956 per ounce on Feb. 24 as President Trump’s trade policies triggered uncertainties and are already up roughly 11% this year. Gold prices will likely continue gaining support in an uncertain environment triggered by the tariff war. Expectations of increased purchases by central banks, hopes of interest rate cuts and geopolitical tensions are other factors likely to help the yellow metal sustain the rally.
AEM offers a dividend yield of 1.7% at the current stock price. It has a five-year annualized dividend growth rate of 13.3%. AEM has a payout ratio of 38% (a ratio below 60% is a good indicator that the dividend will be sustainable). The company's dividend is perceived to be safe and reliable, backed by strong cash flows and sound financial health.
Higher Costs Weigh on Agnico Eagle Stock
Agnico Eagle, like most miners, is plagued by higher production costs. In the fourth quarter of 2024, its total cash costs per ounce of gold were up roughly 4% from the previous year. All-in-sustaining costs (AISC) — the most important cost metric of miners — also rose roughly 7% year over year. AEM forecasts total cash costs per ounce in the range of $915 to $965 and AISC per ounce between $1,250 and $1,300 for 2025, suggesting a year-over-year increase at the midpoint of the respective ranges. While AEM is taking actions to control costs, the inflationary pressure is likely to continue over the near term, weighing on its profit margins and overall financial performance. Higher sustaining capital expenditures and cash costs are expected to contribute to increased AISC.
AEM’s FY25 Earnings Estimates Moving Lower
Agnico Eagle’s earnings estimates for 2025 have been going down over the past 60 days. The Zacks Consensus Estimate for 2025 has been revised lower over the same time frame.
Find the latest earnings estimates and surprises on Zacks Earnings Calendar.
Image Source: Zacks Investment Research
How Should Investors Play the AEM Stock?
With a strong pipeline of growth projects, solid financial health and bullish technicals, AEM presents a compelling investment case for those seeking exposure to the gold mining space. Surging gold prices should also boost AEM’s profitability and drive cash flow generation. However, its high production costs and declining earnings estimates for this year warrant caution. Balancing these factors, retaining this Zacks Rank #3 (Hold) stock would be prudent for investors who already own it.
Image: Bigstock
AEM Trades at Premium Valuation: Buy, Sell or Hold the Stock?
Agnico Eagle Mines Limited (AEM - Free Report) is currently trading at a forward price/earnings of 22.24X, a roughly 52% premium to the Zacks Mining – Gold industry average of 14.59X, and higher than its five-year median.
AEM's shares have performed impressively on the bourses thanks to its forecast-topping earnings performance, riding on higher realized gold prices and strong production. Its shares have rallied 20.9% over the past six months, topping the industry’s 0.1% decline and the S&P 500’s increase of 0.3%. Its gold mining peers, Barrick Gold Corporation (GOLD - Free Report) and Newmont Corporation (NEM - Free Report) have lost 11.5% and 19.2%, respectively, while Kinross Gold Corporation (KGC - Free Report) has gained 13.5%, over the same period.
AEM’s 6-month Price Performance
Agnico Eagle has been trading above the 200-day simple moving average (SMA) since March 4, 2024. The stock is also currently trading above the 50-day SMA. The 50-day SMA continues to read higher than the 200-day SMA, indicating a bullish trend.
Agnico Eagle’s Shares Trade Above 50-Day SMA
AEM’s lofty valuation may not present a compelling value proposition at these levels. Let’s take a look at its fundamentals to better analyze how to play the stock.
Advancement of Key Projects to Incite AEM’s Growth
Agnico Eagle achieved a record annual gold production of 3,485,336 ounces in 2024, driven by higher output from Meadowbank, Canadian Malartic and Macassa. It is focused on executing projects that are expected to provide additional growth in production and cash flows. It is advancing its key value drivers and pipeline projects, including the Odyssey project in the Canadian Malartic Complex, Detour Lake, Hope Bay, Upper Beaver and San Nicolas.
The Hope Bay Project, with proven and probable mineral reserves of 3.4 million ounces, is expected to play a significant role in generating cash flow in the coming years. The processing plant expansion at Meliadine was completed and commissioned in the second half of 2024, with mill capacity expected to increase to roughly 6,250 tons per day in 2025.
The merger with Kirkland Lake Gold established Agnico Eagle as the industry's highest-quality senior gold producer. The integrated entity now has an extensive pipeline of development and exploration projects to drive sustainable growth and the financial flexibility to fund a strong pipeline of growth projects.
AEM’s Solid Financial Health Supports Capital Allocation
AEM has a strong liquidity position and generates substantial cash flows, which allow it to maintain a strong exploration budget, finance a strong pipeline of growth projects, pay down debt and drive shareholder value. During 2024, Agnico Eagle upsized its revolving credit facility to $2 billion, significantly increasing its available liquidity. Its operating cash flow jumped roughly 55% year over year to record $1,132 million in the fourth quarter of 2024. AEM also generated solid fourth-quarter free cash flows of $570 million, up around 89% year over year, backed by the strength in gold prices and strong operational results. It remains focused on paying down debt using excess cash, with net debt reducing by $273 million sequentially to $217 million at the end of the fourth quarter. It reduced net debt by $1,287 million in 2024. AEM also returned around $920 million to shareholders through dividends and repurchases last year.
Higher gold prices should boost AEM’s profitability and drive cash flow generation. Gold has been among the best-performing assets in 2024. Gold prices rallied roughly 27% last year, driven by strong demand from central banks, monetary easing in the United States, global uncertainties and a surge in safe-haven demand thanks to increased tensions in the Middle East and Russia. Gold prices are shooting up this year as the intense U.S.-China tariff war has boosted safe-haven demand for bullion. Prices hit a record high of $2,956 per ounce on Feb. 24 as President Trump’s trade policies triggered uncertainties and are already up roughly 11% this year. Gold prices will likely continue gaining support in an uncertain environment triggered by the tariff war. Expectations of increased purchases by central banks, hopes of interest rate cuts and geopolitical tensions are other factors likely to help the yellow metal sustain the rally.
AEM offers a dividend yield of 1.7% at the current stock price. It has a five-year annualized dividend growth rate of 13.3%. AEM has a payout ratio of 38% (a ratio below 60% is a good indicator that the dividend will be sustainable). The company's dividend is perceived to be safe and reliable, backed by strong cash flows and sound financial health.
Higher Costs Weigh on Agnico Eagle Stock
Agnico Eagle, like most miners, is plagued by higher production costs. In the fourth quarter of 2024, its total cash costs per ounce of gold were up roughly 4% from the previous year. All-in-sustaining costs (AISC) — the most important cost metric of miners — also rose roughly 7% year over year. AEM forecasts total cash costs per ounce in the range of $915 to $965 and AISC per ounce between $1,250 and $1,300 for 2025, suggesting a year-over-year increase at the midpoint of the respective ranges. While AEM is taking actions to control costs, the inflationary pressure is likely to continue over the near term, weighing on its profit margins and overall financial performance. Higher sustaining capital expenditures and cash costs are expected to contribute to increased AISC.
AEM’s FY25 Earnings Estimates Moving Lower
Agnico Eagle’s earnings estimates for 2025 have been going down over the past 60 days. The Zacks Consensus Estimate for 2025 has been revised lower over the same time frame.
Find the latest earnings estimates and surprises on Zacks Earnings Calendar.
How Should Investors Play the AEM Stock?
With a strong pipeline of growth projects, solid financial health and bullish technicals, AEM presents a compelling investment case for those seeking exposure to the gold mining space. Surging gold prices should also boost AEM’s profitability and drive cash flow generation. However, its high production costs and declining earnings estimates for this year warrant caution. Balancing these factors, retaining this Zacks Rank #3 (Hold) stock would be prudent for investors who already own it.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.