Franco-Nevada Shares Up 43% YTD: What's Driving the Stock?

Zacks Equity Research

Shares of Franco-Nevada Corporation FNV have rallied 43% year to date, compared with the industry’s growth of 32%.  Meanwhile, the S&P 500 declined 10.9% over the same period.

Franco-Nevada has a market cap of roughly $28.6 billion. Average volume of shares traded in the past three months was around 1.32 million. The company has a long-term estimated earnings per share growth rate of 4%.

The company has surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 13.9%.

Let’s delve deeper and analyze the factors driving the stock.

Driving Factors

Franco-Nevada seems to be on a long-term growth trajectory driven by a healthy portfolio of streaming and royalty agreements put in place years ago. One of the inherent strengths of Franco-Nevada’s business model is portfolio diversification. Two of its assets, Candelaria and Antapaccay, contributed 12% each to 2019 revenues followed by Cobre Panama that accounted for 8% — a combined total of 32%.

Some of Franco-Nevada's mining operators have been facing the unfavorable impact of the coronavirus outbreak, which includes temporary suspension of operations and production curtailment.  Franco-Nevada’s operator diversification will help negate the overall impact on its company’s revenues.

Given its continued focus on cost management, Franco-Nevada continues to generate high margins. The cash costs per GEO (Cost of sales, less depletion and oil and gas costs, divided by gold equivalent ounces) was at $266 in 2019, seeing a CAGR of 3% over the 2015-2019 timeframe. During this time, its margins have witnessed a CAGR of 5%. As gold prices continue to rise fueled by the slowdown in manufacturing activity, rate cuts, geopolitical tensions, and apprehensions regarding the coronavirus outbreak, it is likely to result in higher margins for the company. 

Franco-Nevada is financially strong and has a debt-free balance sheet. As of Mar 31, 2020, the company had available liquidity of $1.5 billion. Thus, Franco-Nevada is well-positioned to tide over these troubled times and make further investments to grow its diversified portfolio of assets.

Zacks Rank & Stocks to Consider

Franco-Nevada currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Basic Materials sector are DRDGOLD Limited DRD, Newmont Corporation NEM and Wheaton Precious Metals Corp. WPM. All of these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

DRDGOLD has an expected earnings growth rate of 563% for the current year. The stock has appreciated 91% so far this year.

Newmont has a projected earnings growth rate of 86% for 2020. The company’s shares have rallied 53% year to date.

Wheaton Precious Metals has an estimated earnings growth rate of 62% for the ongoing year. So far this year, the company’s shares have gained 52%.

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