A month has gone by since the last earnings report for Franco-Nevada (FNV - Free Report) . Shares have lost about 15.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Franco-Nevada due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers. <div style="text-align: justify;"><div><strong>Franco-Nevada Q2 Earnings and Revenues Miss Estimates</strong></div><div> </div><div>Franco-Nevada reported net earnings of $54 million or 29 cents per share for second-quarter 2018, up from $46.1 million or 25 cents recorded a year ago. Earnings per share missed the Zacks Consensus Estimate of 30 cents.</div><div> </div><div>The company recorded revenues of $161 million in the second quarter, declining 1% from the year-ago quarter. The figure missed the Zacks Consensus Estimate of $172 million. In the quarter, 84.5% of the revenue was sourced from precious metals (67.3% gold, 11.2% silver and 6% platinum group metals) compared with 91.9% in the prior-year quarter.</div><div> </div><div>The company sold 107,333 Gold Equivalent Ounces in the quarter, down 12% from 122,541 Gold Equivalent Ounces in the prior-year quarter.</div><div> </div><div>In the reported quarter, adjusted EBITDA was $126 million, up 1% from $126 million a year ago. </div><div> </div><div><strong>Prices</strong></div><div> </div><div>At second-quarter end, the average gold price was at $1,306 per ounce, approximately 4% higher than the year-ago quarter. Silver prices averaged $16.57 per ounce in the second quarter, a decrease of 4% year over year. Platinum fell 4% year over year to $904 per ounce while palladium prices increased 20% year over year to $979 per ounce.</div><div> </div><div><strong>Financial Position</strong></div><div> </div><div>Franco-Nevada’s cash and cash equivalents fell to $72 million as of Jun 30, 2018, down substantially from $511 million as of Dec 31, 2017. The company recorded operating cash flow of $249 million for the six-month period ended Jun 30, 2018 compared with $239 million in the prior-year comparable period.</div><div> </div><div>Franco-Nevada has entered into a strategic relationship with Continental Resources, Inc. to acquire mineral rights in the SCOOP and STACK plays of Oklahoma. Franco-Nevada is contributing $220 million for the acquisition of existing mineral rights owned by a subsidiary of Continental. The company has committed, subject to satisfaction of agreed upon development thresholds, to spend up to $100 million annually over the next three years to acquire additional mineral rights through a newly-formed company.</div><div> </div><div>Franco-Nevada’s board of directors declared a quarterly dividend of 24 cents per share. The dividend will be paid on Sep 27, 2018 to shareholders of record on Sep 13, 2018.</div><div> </div><div><strong>Corporate Updates</strong></div><div> </div><div>Cobre Panama: Franco-Nevada funded the additional precious metals stream on the Cobre Panama project for $356 million on Mar 16, 2018. Franco-Nevada now has exposure to the precious metals produced from 100% of the ownership of the Cobre Panama project.</div><div> </div><div><strong>2018 Guidance</strong></div><div> </div><div>For 2018, Franco-Nevada expects attributable royalty and stream production from its mining assets to total 440,000 to 470,000 GEOs, lower than the previous expectation of 460,000 to 490,000 GEOs, to reflect reduced deliveries from the Candelaria stream. </div><div> </div><div>The company now expects revenues between $65 million and $75 million from its oil & gas assets for 2018, up from its previous guidance of $50 million to $60 million. This is driven by better than expected contribution from its previously acquired U.S. assets and stronger oil prices.</div><div> </div><div>For the guidance, silver, platinum and palladium metals have been converted to GEOs using assumed commodity prices of $1,250 per ounce of Gold, $16.00 per ounce of Silver, $850 per ounce of Platinum and $950 per ounce of Palladium. The WTI oil price is assumed to average $65 per barrel with a $4.80 per barrel price differential between the Edmonton Light and realized prices for Canadian oil.</div><div> </div><div>For 2019, production will likely improve at Candelaria. The company will also benefit from the ramp-up of its major precious metals stream at Cobre Panama. Further, the company will continue to witness growth from its U.S. oil & gas assets aided by the new Continental relationship.</div></div>
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -5.79% due to these changes.
At this time, Franco-Nevada has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Franco-Nevada has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.