Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – September 2015. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Silver Wheaton Corporation (SLW) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Silver Wheaton Corp. (Silver Wheaton) is a Canada-based mining company. The Company is engaged in pure precious metals streaming and generates its revenues from the sale of silver and gold. As of December 31, 2014, Silver Wheaton had entered into 18 long-term purchase agreements and one early deposit long-term purchase agreement associated with silver and gold (precious metal purchase agreements), relating to 27 different mining assets, whereby Silver Wheaton acquired silver and gold production from the counterparties for a per ounce cash payment which was fixed by contract, generally at or below the prevailing market price. As of December 31, 2014, gold and silver interests owned by Silver Wheaton included San Dimas and Penasquito in Mexico; Yauliyacu, Lagunas Norte and Pierina in Peru; 777, Canada; Salobo, Brazil; Sudbury and Minto in Canada; Veladero, Argentina; Zinkgruvan, Sweden, and Neves-Corvo and Aljustrel in Portugal.
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Downloadable PDF version of this valuation:
ModernGraham Valuation of SLW – October 2015
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor; must pass 6 out of the following 7 tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | $5,587,993,136 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 4.20 | Pass | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Pass | ||
| 4. Dividend Record | Dividend Payments for 10 years prior | Fail | ||
| 5. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | 155.56% | Pass | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 17.40 | Pass | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 1.32 | Pass | |
| Score | ||||
| Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor. | ||||
| 1. Sufficiently Strong Financial Condition | Current Ratio > 1.5 | 4.20 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 12.32 | Fail | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Pass | ||
| 4. Dividend Record | Currently Pays Dividend | Pass | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Pass | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $0.84 |
| MG Growth Estimate | 1.85% |
| MG Value | $10.21 |
| Opinion | Overvalued |
| MG Value based on 3% Growth | $12.12 |
| MG Value based on 0% Growth | $7.11 |
| Market Implied Growth Rate | 4.45% |
| Current Price | $14.55 |
| % of Intrinsic Value | 142.55% |
Silver Wheaton Corporation qualifies for both the Defensive Investor and for the Enterprising Investor.  The Defensive Investor is only concerned by the short dividend record and the Enterprising Investor is only initially concerned by the high level of debt relative to the net current assets. As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.
As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $0.74 in 2011 to an estimated $0.84 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 4.45% annual earnings loss over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Silver Wheaton Corporation (SLW)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | -$1.63 |
| Graham Number | $10.70 |
| PEmg | 17.40 |
| Current Ratio | 4.20 |
| PB Ratio | 1.32 |
| Dividend Yield | 1.51% |
| Number of Consecutive Years of Dividend Growth | 0 |
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| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Total Current Assets | $76,197,000 |
| Total Current Liabilities | $18,157,000 |
| Long-Term Debt | $715,000,000 |
| Total Assets | $5,203,371,000 |
| Intangible Assets | $0 |
| Total Liabilities | $735,672,000 |
| Shares Outstanding (Diluted Average) | 404,308,000 |
Earnings Per Share History
| Next Fiscal Year Estimate | $0.46 |
| Dec14 | $0.56 |
| Dec13 | $1.05 |
| Dec12 | $1.65 |
| Dec11 | $1.55 |
| Dec10 | $0.44 |
| Dec09 | $0.38 |
| Dec08 | $0.07 |
| Dec07 | $0.37 |
| Dec06 | $0.37 |
| Dec05 | $0.15 |
| Aug04 | -$0.08 |
| Aug03 | $0.03 |
| Aug02 | -$0.06 |
Earnings Per Share – ModernGraham History
| Next Fiscal Year Estimate | $0.84 |
| Dec14 | $1.03 |
| Dec13 | $1.18 |
| Dec12 | $1.11 |
| Dec11 | $0.74 |
| Dec10 | $0.34 |
| Dec09 | $0.28 |
| Dec08 | $0.21 |
| Dec07 | $0.24 |
| Dec06 | $0.15 |
| Dec05 | $0.03 |
| Aug04 | -$0.03 |
| Aug03 | -$0.01 |
| Aug02 | -$0.02 |
Recommended Reading:
Other ModernGraham posts about the company
Silver Wheaton Corporation Valuation – Initial Coverage $SLW
Other ModernGraham posts about related companies
Disclaimer:
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.
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