Is Agnico Eagle Stock a Smart Buy Before Q2 Earnings?

Agnico Eagle Mines Limited AEM is slated to come up with second-quarter 2024 results after the closing bell on Jul 31. The company's performance is expected to reflect the benefits of higher gold prices and strong production.

The Zacks Consensus Estimate for second-quarter earnings has been revised 9.9% upward in the past 60 days. The consensus estimate for earnings is pegged at 89 cents per share, suggesting a 36.9% year-over-year rise. The Zacks Consensus Estimate for revenues currently stands at $1.72 billion, indicating no change on a year-over-year basis.

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AEM beat the Zacks Consensus Estimate for earnings in each of the last four quarters at an average of roughly 16.5% on average.

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Earnings Whispers

Our proven model predicts an earnings beat for AEM this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earning beat.

Agnico Eagle has an Earnings ESP of +4.86% and a Zacks Rank #2.

Factors Shaping Q2 Results

The benefits of higher gold prices are expected to reflect on the company's performance in the June quarter. Gold prices are hitting record highs this year, and the yellow metal has been among the best-performing assets. Gold has rallied roughly 16% this year driven by strong demand from central banks, a dovish Fed interest rate outlook, global uncertainties and a surge in safe-haven demand thanks to geopolitical tensions. Notably, prices of the yellow metal racked up a roughly 4% gain for the second quarter of 2024.

Our estimate for realized gold prices is $2,021 per ounce for the quarter, suggesting a 2.3% year-over-year increase.

Moreover, continued strong gold production is likely to have supported the company's performance. Efforts to increase mill throughput at Detour Lake and improve productivity at Macassa are likely to have aided production. AEM is also expected to have witnessed continued strong performance in its Nunavut operations. Production is also expected to have been driven by additional production from the acquisition of the remaining 50% of the Canadian Malartic complex following the buyout of the Canadian assets of Yamana Gold. Our estimate for payable gold production is pegged at 843,693 ounces for the June quarter.

While the company saw sequentially lower all-in-sustaining costs (AISC) — the most important cost metric of miners — in the first quarter due to the deferral of certain sustaining capital expenditures, the same is expected to have increased in the second quarter. AEM sees higher AISC in the subsequent quarters of 2024. Higher sustaining capital spending is expected to have contributed to a rise in AISC in the June quarter.   

Our estimate for AISC for gold is pegged at $1,193 per ounce, indicating a 3.7% year-over-year increase.

Price Performance and Valuation

Thanks to the rally in gold prices and solid earnings performance, AEM's shares have performed impressively on the bourses this year. Its shares have rallied 33.8% year to date, topping the industry's 17.9% rise and the S&P 500's increase of 14.5%. With respect to its major gold mining peers, Barrick Gold Corporation GOLD has declined 1.7% while Newmont Corporation NEM and Kinross Gold Corporation KGC have gained 12.9% and 42.3%, respectively, over the same period.

YTD Price Performance

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From a valuation standpoint, Agnico Eagle is currently trading at a forward 12-month earnings multiple of 20.29X, a roughly 35.5% premium to the peer group average of 14.97X. However, this stretched valuation should not scare investors away considering the company's healthy earnings trajectory.

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Investment Thesis

Agnico Eagle is well-placed for growth on the advancement of its key value drivers and pipeline projects including Odyssey, Detour Lake and Hope Bay, which are expected to provide additional growth in production and cash flows. The merger with Kirkland Lake Gold established Agnico Eagle as the industry's highest-quality senior gold producer with an extensive pipeline of development and exploration projects to drive sustainable growth.

AEM has a strong liquidity position and generates substantial cash flows, which allows it to maintain a strong exploration budget, finance a strong pipeline of growth projects, pay down debt and drive shareholder value. Rallying gold prices should also boost AEM's profitability and drive cash flow generation.

Conclusion

With a strong pipeline of growth projects, solid financial health, healthy growth trajectory, rising earnings estimates and favorable gold market conditions, AEM stock presents a compelling investment case ahead of its earnings announcement for those seeking exposure to the gold mining space. Backed by a positive earnings outlook, AEM is a prudent choice to bet on for those looking to capitalize on the anticipated strong second-quarter results.

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