Why Is Franco-Nevada (FNV) Up 3.6% Since Last Earnings Report?

It has been about a month since the last earnings report for Franco-Nevada (FNV). Shares have added about 3.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Franco-Nevada due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Franco-Nevada Q2 Earnings Beat Estimates, View Up

Franco-Nevada delivered adjusted earnings of $64 million or 34 cents per share in second-quarter 2019, up from the prior-year quarter’s $53.7 million or 29 cents per share. In addition, the earnings per share figure surpassed the Zacks Consensus Estimate of 31 cents.

The company generated revenues of $170.5 million in the reported quarter, reflecting year-over-year improvement of 5.7%. The revenue figure missed the Zacks Consensus Estimate of $174 million. In the quarter, 83.8% of revenues were sourced from gold and gold equivalents (62.2% gold, 9.7% silver, 8.6% platinum group metals and 3.3% other mining assets) and 16.2% from energy (oil, gas and natural gas liquids).

The company sold 107,774 Gold Equivalent Ounces (GEOs) in the quarter, up from 107,333 GEOs in the prior-year quarter.

During the reported quarter, adjusted EBITDA increased 9.2% to $137.9 million from $126.3 million in the comparable period last year.

Prices

At the end of the June-end quarter, average gold price was $1,310 per ounce, approximately 0.3% higher than the year-ago quarter. Silver prices averaged $14.89 per ounce in the quarter, down 10.1% year over year. Platinum too fell 6.8% year over year to $842 per ounce, while palladium prices jumped 41.7% year over year to $1,388 per ounce.

Financial Position

The company ended the April-June quarter with $398.9 million cash in hand, significantly up from $69.7 million reported at the end of 2018. It recorded operating cash flow of $262.7 million for the six-month period ended Jun 30, 2019, compared with $248.8 million reported in the comparable period last year.

Franco-Nevada’s board of directors has announced a quarterly dividend of 25 cents per share. The dividend will be paid on Sep 26, to shareholders of record on Sep 12, 2019.

Business Updates

Cobre Panama project has commenced production of initial gold and silver stream in July, and is expected to produce 140,000-175,000 tons of copper in 2019. The company anticipates the project to be a major growth driver for the second half of the current year.

Outlook

Franco-Nevada expects GEOs to be at the upper end of the previously-issued guided range of 465,000 to 500,000, driven by strong results so far this fiscal and increase in expected deliveries from the Cobre Panama project. Additionally, the Marcellus royalty acquisition and stellar performance of energy assets aided Franco-Nevada’s revenue expectation for the ongoing year. The company now anticipates to generate $100-$115 million in revenues from its energy assets compared with the prior estimate of $70-$85 million. This guidance reflects WTI oil price of $55 per barrel and a Henry Hub natural gas price of $2.40 per mcf for the remainder of the current year.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 11.36% due to these changes.

VGM Scores

At this time, Franco-Nevada has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, 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.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Franco-Nevada has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.