Higher Gold Prices Will Send This Stock Up

The rise in precious metals prices has been a boon for the likes of Franco-Nevada , whose stock has taken off impressively in the last few months. The company recently released mixed fiscal second quarter results, but investors didn’t mind as there’s a lot of promise here that could send the stock higher.

Franco-Nevada Is Pulling the Right Strings

Franco-Nevada sold 107,774 gold equivalent ounces during the second quarter, which was almost flat from the year-ago period. But the company’s revenue increased nearly 6% year over year to $170.5 million.

What’s more, Franco-Nevada’s cash costs per gold equivalent ounce sold fell to $238 as compared to $252 during the prior-year period. This helped the company boost its adjusted net income to $0.34 per share during the quarter as compared to $0.29 per share in the prior-year period.

Looking ahead, it won’t be surprising to see Franco-Nevada deliver further top- and bottom-line growth as its guidance suggests more upside in the future. The company now believes that its deliveries will be at the higher end of its original guidance range of 465,000 to 500,000 gold equivalent ounces.

Moreover, the company’s energy portfolio is also expected to do better, delivering revenue between $100 million and $115 million in 2019 as compared to the earlier guidance range of $70 million to $85 million. More importantly, Franco-Nevada’s energy revenue is based on a conservative WTI oil price estimate of $55 per barrel, and a natural gas price of $2.40 per Mcf for the remaining year.

Don’t Miss the Real Catalyst

Gold is going to be the real catalyst for Franco-Nevada this year. The company witnessed an average realized gold price of $1,310 an ounce for the second quarter of 2019, up slightly from $1,306 an ounce in the year-ago quarter.

Now, the price of gold is currently at nearly $1,500 an ounce, so don’t be surprised to see Franco-Nevada’s financial performance take off in the coming quarters thanks to stronger production and lower costs.

Looking ahead, gold is expected to clock the $1,600 an ounce mark in the coming months thanks to trade war fears and a global economic slowdown. The Financial Post reports that Goldman Sachs expects gold to hit that mark in the next few months:

Analysts at the bank predict prices that have already soared to a six-year high will climb to US$1,600 an ounce over the next six months as investors seek haven amid a dimming global economic outlook, fuelled by heightening trade tensions between the U.S. and China.

Not surprisingly, Franco-Nevada’s top line is expected to clock double-digit growth for both 2019 and 2020, along with a solid increase in the company’s earnings per share. As such, it would make sense for investors to continue holding Franco-Nevada stock despite its 30% gains so far this year.

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
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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