First Majestic Silver Is Primed for More Upside

First Majestic Silver [stock_market_widget type="inline" template="generic" color="default" assets="FR.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] stock has rallied remarkably in 2019 on the back of a silver price rally, though the recent drop in silver prices has dampened investors’ enthusiasm to some extent. Still, First Majestic stock is up more than 50% in 2019 and it looks all set to get back on track in the future thanks to a favourable production profile.

First Majestic Has an Impressive Operational Profile

First Majestic delivered its second-quarter results in early August and they turned out to be impressive. The company’s silver equivalent production was up 25% year over year to 6.4 million ounces during the quarter. Its pure silver production increased by 16% to 3.2 million ounces.

However, this impressive increase in production was offset by weak realized prices. First Majestic said that its average realized silver price during the second quarter fell to $14.80 an ounce as compared to $16.74 an ounce in the year-ago quarter. This 12% annual decline in silver prices meant that First Majestic’s revenue increased only 5% year over year to $83.7 million.

However, the stronger production numbers and lower costs allowed the company to reduce its adjusted loss to $0.02 per share as compared to $0.07 per share in the year-ago period. First Majestic’s cash cost per ounce during the quarter came in at $6.84 during the second quarter, down 10% from the year-ago period’s cash cost of $7.59.

The all-in sustaining cost per ounce also fell by 10% year over year to $14.76. So, First Majestic pulled the right strings as far as production and costs were concerned. It was the weakness in silver prices that played spoilsport during the quarter, but that problem should get out of the way given the levels at which the metal is currently trading.

Strong Silver Prices Will Be a Tailwind

Silver is currently trading at around $17.50 an ounce. This is higher than the average realized price clocked by the company last quarter. What’s more, industry experts believe that silver still has a lot of room to run higher. According to Silver Phoenix 500:

But there is no doubt that the silver bull has awakened and when silver finally breaks out, the move tends to be very explosive! I think we could see silver climb above $20 by year-end and make a move back toward $50 over the next 18 months.

If the price of silver can get anywhere close to such optimistic price targets in the future, then First Majestic will witness a solid increase in its top and bottom lines. Moreover, if silver manages to stick to its current price levels, First Majestic will have a nice tailwind considering the higher production and lower costs that it is enjoying.

Not surprisingly, a compilation of analyst estimates by Yahoo Finance suggests that First Majestic’s top- and bottom-line performance will improve remarkably next year. The company is expected to turn a profit next year as top-line growth will accelerate, making it a good idea to remain invested in First Majestic despite the recent pullback.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


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