Pan American Silver Stock Is Great Value Right Now

Pan American Silver [stock_market_widget type="inline" template="generic" color="default" assets="PAAS.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] stock has stepped on the gas in the past quarter thanks to the rally in the silver price. The good news for investors is that the stock’s run might not be over just yet as the rising silver price is proving to be a solid tailwind for its financial performance.

So if you’re looking for a silver stock that can deliver upside in the future, Pan American could be a good bet. Let me explain why.

Pan American Is Enjoying Terrific Growth

In the second quarter of fiscal 2019, Pan American Silver delivered almost $283 million in revenue, up 31% from the prior-year period. This increase in the company’s top line was achieved despite lower silver prices. More specifically, Pan American witnessed a realized average silver price of $14.90 per ounce during the quarter, down from $16.40 per ounce in the year-ago period.

Pan American recorded silver production of 6.5 million ounces during the quarter, while gold production came in at 154,000 ounces. In the year-ago period, the company’s gold production was quite low at 53,400 ounces. So the sharp increase in gold production played a key role in boosting the company’s top line.

More importantly, Pan American’s cost profile was low during the quarter. In the silver segment, the company reported cash cost of $6.67 per ounce, while all-in sustaining costs stood at $10.67 per ounce sold. Cash cost per ounce of gold sold came in at $700 an ounce, while all-in sustaining costs were also low at $980 an ounce.

This means that Pan American enjoys nice gold and silver margins thanks to its low cost base. However, both cash costs and all-in sustaining costs increased substantially on a year-over-year basis. Pan American’s cash cost per ounce of silver stood at $1.84 an ounce in the year-ago period, while all-in sustaining costs were $5.33 an ounce.

The increase in costs and production can be attributed to the acquisition of Tahoe Resources that was completed in February this year. That acquisition made Pan American the largest publicly-traded silver company.

The Future Looks Bright

The acquisition will weigh on Pan American’s bottom line in the short run, as a part of the consideration was paid in the form of stock.

Not surprisingly, analyst estimates compiled by Yahoo Finance indicate that its earnings will stay flat this year at $0.39 per share. But a massive jump is expected in 2020 when earnings are expected to go up to $0.76 per share.

Given that silver prices are expected to keep rising in the coming months thanks to the demand-supply deficit in the market and silver’s status as a safe-haven asset. So it might be a good time to buy Pan American Silver right now given that it trades at a forward price-to-earnings ratio of 21, which is well below the 72x five-year average.

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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