Wheaton Precious Metals Corp (LSE:WPM, TSX:WPM, NYSE:WPM) has been downgraded by UBS analysts who believe significant share price appreciation has already factored in projected growth and commodity price gains.
The analysts downgraded Wheaton to ‘Neutral’ from ‘Buy’ but raised their price target to $106 from $100.
Shares of Wheaton traded hands at $95, up almost 70% in the year to date.
“We downgrade to ‘Neutral’ with a higher $106 per share price target versus $100 per share after gains year-to-date, which in our view is pricing in recent gold/silver price appreciation and projected organic volume growth,” UBS wrote.
The firm noted it continues to view Wheaton’s exposure to gold and silver as attractive.
“We continue to like Wheaton’s low risk/high margin gold/silver exposure and diversified growth with the company targeting approximately 40% growth in gold equivalent ounces (GEO) production over the next five years,” the analysts wrote.
The bank acknowledged Wheaton’s ability to execute on growth plans, projecting roughly 40% growth in GEO over the next five years from a pipeline of projects in Canada, Colombia, South Africa, Ivory Coast, Ethiopia, and Chile.
“Project execution in the mining sector is notoriously unreliable, but no single project dominates Wheaton's growth profile; this diversification materially reduces execution risk, in our view,” they wrote.
However, UBS noted that Wheaton’s share price gains have significantly outpaced the rise in gold and silver this year, leading to a sharp valuation re-rating.
The firm said the stock now trades at around 28 times its 12-month forward consensus EV/EBITDA, up roughly 45% year-to-date and sitting about 30% and 45% above its five- and 10-year historical averages, respectively.
UBS forecasts that organic volume growth could drive 30% to 40% EBITDA growth by 2027 to 20228 at spot commodity prices, but said this would leave Wheaton trading close to its historical average valuation, suggesting limited upside.
“As a result, we see better risk vs reward elsewhere in the precious metals space,” they wrote, noting that they favor Franco-Nevada in the streaming and royalties segment and Barrick Gold, Endeavour Mining, and Kinross Gold among gold producers.