Gold has rallied, as market volatility, rising interest rates, and uncertainty around crypto scandals have prompted some investors to seek investments that offer hedges. The U.S. dollar lost some purchasing power amid geopolitical and macro headwinds, yet, “the dollar remains king.” But, for investors looking for defensive investments amid global uncertainty, diversification that may benefit from risk-off market-driven sentiment, gold has been a precious asset for centuries and continues to showcase strong performance over the last two years. Quant strong buy-rated Agnico Eagle Mines Limited (NYSE:AEM) offers a total return that is outperforming the S&P 500 (SPY), SPDR® Gold Shares ETF (GLD), and VanEck Vectors Gold Miners ETF (GDX)’s total returns.

Agnico Eagle Mines (AEM) stock vs. SP500, GLD, GDX, XAUUSD:CUR (period July 2, 2022 - July 2, 2024)

Agnico Eagle Mines has capitalized on the gold price (XAUUSD:CUR) surge by delivering record operating margins and free cash flow in the last two quarters. AEM was listed among SA Quant’s Top 5 Mining Stocks. This article aims to take a deeper dive into the solid investment fundamentals and quantitative metrics driving AEM’s Strong Buy Quant Rating.

Agnico Eagle Mines Limited (AEM)

• Market Capitalization: $32.47B

• Quant Rating: Strong Buy

• Quant Sector Ranking (as of 7/2/24): 14 out of 280

• Quant Industry Ranking (as of 7/2/24): 7 out of 44

Toronto-headquartered, AEM is a gold mining company with operations in Canada, Mexico, Finland, and Australia. Unlike its peer, VanEck Gold Miners ETF, AEM has crushed the market and the materials sector (XLB), up +34% in the past 1Y and +24% YTD. Gold closed at a record high of $2,437.58/oz on May 19 before retreating. As of July 2, 2024, the price of gold is up 20% in the past year and +12% YTD at ~$2,323/oz, with the VanEck Gold Miners ETF (GDX) ~+10% in the past year and +9% YTD.

AEM 1Y Price Performance vs. Peers & Commodity Price

SA Quant Ratings aim to provide an objective, unemotional, data-driven evaluation of each stock based on over 100 underlying metrics graded across five factors: Valuation, Growth, Profitability, Momentum, and EPS Revisions. Seeking Alpha Factor Grades rate investment characteristics on a sector-relative basis. AEM’s Strong Buy Quant Rating is driven by excellent profitability, momentum, and earnings revisions. AEM also has bullish ratings from SA and Wall Street analysts. AEM at the start of the year was at a 3.57 Quant Buy Rating, before rising on the back of improved momentum and consensus earnings forecasts.

AEM Earnings Results & Outlook

Agnico Eagle Mines is the third largest gold mining producer in the world, with 3.44Moz of production in 2023 and 53.8Moz in proven and probable gold reserves. About 83% of Q124 production came from mining operations in Canada, including Quebec and Ontario, two regions ranked among the top ten most attractive jurisdictions for mining investment in the Fraser Institute’s annual survey. The remainder of AEM output was split amongst operations in Australia, Finland, and Mexico. AEM in June announced plans to expand production at its Detour Lake mine in Ontario to 1.01Moz/year starting in 2030. Agnico will ramp up underground output concurrent with ongoing open pit production.

AEM Q124 Non-GAAP EPS of $0.76 beat by $0.16 and revenue of $1.83B (+21.2% YoY) beat by $53M. AEM has 7 EPS beats in the last 2 years. AEM reported adjusted Q1 EBITDA of $929M (+26% YoY), FCF of $396M (+50% YoY). AEM gold output was 879Koz (+11.5% YoY) with realized gold price of $2,062/oz (+9%). Gold’s average closing price from April 1 to June 30, 2024, was $2,337.63/oz, 12.4% higher than the average closing price from January 1 to March 30. In the Q124 earnings call on April 26, AEM said it expects to generate “substantial free cash flow” in subsequent quarters at “current gold prices,” which at the time were $2,334.67/oz. AEM all-in sustaining cost (AISC) was $1,190/oz vs. a global industry average of $1,342/oz. AEM capex for the quarter was $372M, including $181M in development capex, up 8.8% YoY.

AEM reiterated 2024 full year guidance with midpoint gold production target at 3.45Moz, AISC $1,225/oz, and capex $1.65B vs. 3.44Moz of production, AISC of $1,179, and capex of $1.475B in 2023. AEM has 12 up revisions in the last 3 months, during which its annual EPS target was lifted 35%. According to consensus estimates, AEM Q324 EPS is projected to grow 83% YoY and another 58% in Q4. AEM FY24 EPS is projected to rise 46% to $3.27 and another +7% in FY25. FY24 revenue is expected to grow +17% to $7.81B and another 4% in FY25.

AEM Stock Profitability

AEM has an ‘A’ in Profitability with gross profit margin of 56% and EBITDA margin of 48% crushing the sector by 98% and 196%, respectively. AEM’s levered free cash flow margin has grown steadily in the past two years from 5.84% to 15.51%.

AEM’s gross margin also outperforms key industry peers, soundly beating Barrick, Newmont, and Gold Fields, and edging out Kinross. AEM leads the four major rivals in EBITDA margin and LFCF margin.

AEM Stock Growth

AEM Growth Factor Grade of ‘C’ is the result of negative EPS and ROE growth. AEM however gets solid sector relative grades in most underlying growth metrics. Solid cost performance along with higher gold prices helped drive record cash flows and financial results, according to AEM in the earnings call. AEM revenue grew a solid +17% YoY in the trailing twelve months vs. a sector median of -5%. EBITDA grew +23% and LFCF a mind-boggling +66%. Revenue forward growth is 12%, EBITDA +19%, EPS +15%, and FCF per share growth FWD +43%.

Despite the stock’s ‘D’ Valuation indicating the stock trades at a premium, weighed down by P/E of 19.9x vs. the sector’s 15x, its EV/EBITDA FWD, a key mining valuation metric, of 7.97x is a slight discount to the sector’s 8.3x. AEM offers a solid dividend safety grade of B-, which includes a FWD yield of 2.46% with a 27% 5Y growth rate, and 40 consecutive years of payments.

AEM Stock Risk

The overall SA Quant Rating also takes into account a stock's risk, in addition to size, which are not included among the five factor grades. AEM 60M beta of 1.10 indicates the stock is more volatile than the market, although 24M beta is 0.88. Altman Z Score of 2.18 is above the 1.8 financial distress threshold. AEM has total debt-to-equity of a mere 10% with $532.97M in cash and $1.99B in debt on the balance sheet. AEM covered ratio of 13.57x indicates significant operating profit to cover debt payments. Gold mining stocks face unique risks as miner revenue and profits are tightly correlated to the price of gold, which can fluctuate dramatically based on global macroeconomic and geopolitical drivers outside company control, including changes in the strength of the dollar, interest rates along with demand from central banks, China, and India.

Concluding Summary

AEM is crushing sector and industry peers, up +34% in the past year and +24% YTD, showcasing strong profitability and earnings growth potential. AEM capitalized on the surge in gold prices, and were able to expand margins.

One of the world’s largest gold miners, AEM has a proven record of profitable growth, with EBITDA margin of 48% and levered free cash flow margin at 15%. EBITDA grew 23% in the trailing twelve months and LFCF growth rose +66%. AEM’s FY24 EPS is projected to rise 46% to $3.27 and revenue +17% to $7.81B. Excellent investment fundamentals, momentum, and high earnings growth potential make AEM a Quant Strong Buy stock.

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