Pan American Tops 4Q Profit Amid Silver Price Rally; Street Sees 17% Upside

Pan American Silver Corp. posted better-than-expected earnings in the fourth quarter as the rise in realized prices of precious metals helped the company mitigate the impact of COVID-19 induced mine suspensions and throughput reductions on the volume of metal sold.

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Shares of Pan American Silver (PAAS) rose 2.6% in the after-market trading session on Feb. 17. The company posted earnings per share (EPS) of $0.57 during the fourth quarter, topping analysts’ expectations of $0.44. Its bottom line during this period was driven by higher mine operating earnings and recognition of deferred income tax assets related to mine life extensions at its Timmins and La Arena operations.

Revenue increased about 6.4% year-on-year to $430.5 million, lagging analysts’ estimates of $439.7 million.

Pan American is the world’s second largest primary silver producer and has the largest silver base globally.

The silver mining company’s fiscal 2020 consolidated silver and gold production, which was impacted by mine suspensions and throughput reductions, stood at 17.3 million ounces and 522.4 thousand ounces respectively.

Pan American CEO Michael Steinmann said, “The strong financial performance in 2020, generating a record $462.3 million in operating cash flow enabled us to fully repay all bank debt, double our quarterly dividend and grow our cash balance at year end.”

Pan American fully repaid debt of $275 million in fiscal 2020. Furthermore, the company announced a cash dividend of $0.07 per share.

For fiscal 2020, the company generated sales of $1.34 billion, down from the $1.35 billion posted in 2019. Diluted earnings per share came in at $1.16 as compared with $0.78 in the year-ago period.

Looking ahead to fiscal 2021, Pan American sees silver production to be in the range of 22.50 to 24 million ounces, a 30% to 39% year-on-year increase. It sees gold production to be in the range of 605 thousand to 655.1 thousand ounces, a 16% to 25% year-on-year increase. (See Pan American stock analysis on TipRanks)

On Feb. 10, J. P. Morgan analyst Tyler Langton initiated the stock’s coverage with a price target of $38.54 (21% upside potential) and a Buy rating. Langton notes that silver prices are well below their 2011 peak, tend to outperform gold early in the cycle, and could benefit from higher green spending in the longer-term.

“Pan American generates 30% revenue from silver and should see meaningful production growth as it comes out of COVID-19 restrictions,” the analyst said.

The rest of the Street has a Moderate Buy consensus rating on the stock based on 2 Buys and 2 Holds. The average analyst price target of $37.45 implies about 17.6% upside from current levels. That’s after the stock already surged about 46% over the past year.