Franco-Nevada Hits New 52-Week High: What's Driving The Rally?

Shares of Franco-Nevada Corporation (TSX:FNV) scaled a fresh 52-week high of $101.65 during the trading session on Dec 24, before retracting a bit to close at $101.36. Better-than-expected earnings in the third quarter, an upbeat outlook for 2019 and higher gold prices have contributed to this rally.

Franco-Nevada has a market cap of roughly $19.1 billion. The company has an expected long-term earnings per share growth rate of 4%. It surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the positive surprise being 11.75%, on average.

In the past six months, shares of Franco-Nevada have gained 21.4%, outperforming the industry’s growth of 16.8% and the S&P 500’s rise of 10.2%.

Driving Factors

Franco-Nevada’s stellar third-quarter results, reported on Nov 11, led to the upswing in its share price. Adjusted earnings were 54 cents per share in the quarter, up 86% from the prior-year quarter and also beat the Zacks Consensus Estimate by a margin of 20%. The performance can be attributed to the start of precious metals deliveries from Cobre Panama and addition of a new energy royalty in the Marcellus.

The Cobre Panama project commenced commercial production in September 2019 — a month earlier than expected. Franco-Nevada received a total of 21,526 GEOs from the project in third-quarter 2019. The company anticipates the project to be on track for deliveries toward high end of its guidance at 20,000-40,000 GEOs. It expects GEOs in 2019 to be at the upper end of the range of 490,000 to 500,000, backed by strong results so far this fiscal year and higher-than-expected deliveries from the project. Further, growth is expected as the Cobre Panama project ramps up.

On Jul 22, 2019, Franco-Nevada acquired a 1% overriding royalty interest, covering approximately 350,000 acres in the Marcellus from Range Resources Corporation (NYSE:RRC) for $300 million. The royalty applies to existing production and future development from the Marcellus formation, and future potential development from the Utica and Upper Devonian formations. The company now anticipates generating revenues at the higher end of its guidance of $100-$115 million from its energy assets, driven by the Marcellus royalty acquisition and stellar performance of energy assets. With the continued development of its U.S. oil & gas assets, it expects energy assets to contribute $140-$160 million by 2023.

Also, gold prices have been up 15% so far this year, which has also aided Franco-Nevada’s share price performance. The trade war, slowdown in manufacturing activity and rate cuts have collectively helped lift the yellow metal's investment appeal.

Positive Growth Projections

Analysts are steadily growing bullish on the stock. Over the last 60 days, the Zacks Consensus Estimate for 2019 earnings moved 4% north. For 2020, the Zacks Consensus Estimate for earnings moved up 3%, during the same time frame.

The Zacks Consensus Estimate for Franco-Nevada’s 2019 earnings is currently pegged at $1.70, indicating year-over-year growth of 45.3%. The same for 2020 is pinned at $2.13, suggesting year-over-year rise of 25.4%.

Zacks Rank & Other Stocks to Consider

Franco-Nevada currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some other top-ranked stocks in the basic materials space are Impala Platinum Holdings Limited (OTC:IMPUY) , Pan American Silver Corp. (NASDAQ:PAAS) and Air Products and Chemicals, Inc. (NYSE:APD) . While Impala Platinum and Pan American Silver currently sport a Zacks Rank #1, Air Products carries a Zacks Rank #2.

Impala Platinum Holdings has projected earnings growth rate of 255.2% for fiscal 2020. The company’s shares have skyrocketed 107% over the past six months.

Pan American Silver has an estimated earnings growth rate of 56.4% for 2019. Its shares have returned 79% in the past six months.

Air Products has an expected earnings growth rate of 15.5% for fiscal 2020. The company’s shares have gained 5% in the past six months.

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