How Will Silvercorp Metals Overcome Silver's Decline?
On Wednesday, Silvercorp Metals will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.
Silvercorp Metals was already making its investors suffer before April's big swoon for the gold and silver markets. Now, narrowing profit margins due to low silver prices could further squeeze silver miners and eventually threaten their profitability. Let's take an early look at what's been happening with Silvercorp Metals over the past quarter and what we're likely to see in its quarterly report.
Stats on Silvercorp Metals
Analyst EPS Estimate
Change From Year-Ago EPS
Change From Year-Ago Revenue
Earnings Beats in Past 4 Quarters
Source: Yahoo! Finance.
Can Silvercorp Metals boost its earnings?
Analysts have gotten a lot more nervous about Silvercorp Metals in recent months, cutting their earnings estimates for the just-ended quarter by $0.02. But they see the real damage coming in the next fiscal year, having slashed their fiscal 2014 estimates by nearly half, and that's largely responsible for the 40% plunge in the stock since mid-February.
We've already gotten a sense of what Silvercorp expects in its future results, as the company issued guidance for its fiscal 2014 year back in February. With increases in ore production at the Canadian company's Chinese mines to 1.5 million tons, Silvercorp hopes to produce 6.7 million ounces of silver, 20,800 ounces of gold, and almost 105 million pounds of lead and zinc, among other base metals and byproducts.
Yet the big problem that lies ahead for Silvercorp is the plunge in commodities that occurred in April. Although that won't get reflected in Wednesday's numbers, they could definitely play a big part in its future guidance going forward. Fortunately, Silvercorp's costs are relatively low, with the company actually posting negative cash costs in the Ying Mining District in its most recent quarter, but nevertheless, even it can't avoid the impact of falling market prices for its products.
If the plunge persists, then it could eventually pressure Silvercorp to cut its dividend. Silver Wheaton reduced its payout from $0.14 to $0.12 per share in its most recent quarter, noting the decline in cash flow that falling silver prices produced as the main contributing factor in the decision. Still, Pan American Silver kept its dividend steady earlier this month, and even with lower projected earnings in light of silver's drop, it has ample profits to cover its dividend, and Silvercorp appears to have the same advantage.
In Silvercorp's quarterly report, watch closely for signs that lower prices might spur the company to change its planned capital expenditures or other critical business functions. If Silvercorp starts battening down the hatches with cost cuts, it could be a sign that the crash in commodities is more serious than some investors currently believe.
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The article How Will Silvercorp Metals Overcome Silver's Decline? originally appeared on Fool.com.Motley Fool contributor Dan Caplinger owns shares of Silver Wheaton. You can follow him on Twitter @DanCaplinger. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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