Highlights of the week of March 17, 2014

2010-palladium-bars

Dear PGM Capital Blog readers,

In this weekend’s blog edition, we want to discuss some of the most important events that happened in the global capital markets, the world economy and the world of money in the week of March 17, 2014.

  • What is FedEx Mediocre Earnings report telling us on the state of the USA Economy?
  • Silver Wheaton Corporation, reported record production and reserves.
  • Palladium prices at highest level since August 2011.

MEDIOCRE FEDEX EARNINGS A SIGN OF WHAT TO COME?:
On Wednesday, March 19, 2014, the world’s second biggest courier by volume, FedEx (NYSE: FDX) reported earnings of US$1.23 per diluted share for the third quarter ended February 28, compared to US$1.13 per share last year.

FedEx

Q3-2014 Highlights:

  • Revenue of US$11.3 billion, up 3% from US$11.0 billion the previous year
  • Operating income of US$641 million, up 9% from US$589 million last year
  • Operating margin of 5.7%, up from 5.4% the previous year
  • Net income of US$378 million, up 5% from last year’s $361 million
  • The company projects earnings to be US$2.25 to US$2.50 per diluted share in the fourth quarter and US$6.55 to US$6.80 per diluted share for fiscal 2014.

Breaking down the company’s figure for the Express and Ground segments gives us the following data:

Highlights of the FedEx Express segment Unit:

  • Revenue of $6.67 billion, down slightly from last year’s $6.70 billion
  • Operating income of $135 million, up 14% from $118 million a year ago
  • Operating margin of 2.0%, up from 1.8% the previous year

Highlights of the FedEx Ground segment Unit:

  • Revenue of $3.03 billion, up 10% from last year’s $2.75 billion
  • Operating income of $477 million, up 2% from $467 million a year ago
  • Operating margin of 15.7%, down from 17.0% the previous year.

Source:

SILVER WHEATON CORPORATION:

About the Company:
Silver Wheaton Corporation (TSX: SLW.TO), together with its subsidiaries, is the largest silver streaming company in the world. The Company has long term contracts to purchase all or a portion of the silver production from mines in Mexico, Sweden, Peru, Greece, Portugal, Canada and the United States. The company was founded in 2004 and is headquartered in Vancouver, Canada.

Below chart shows the mines locations of Silver Wheaton Corporation.

silver-wheaton-map-silver-deposit

On Friday, March 21st, 2014, the company reported its FY-2013, earnings report.

Highlights:

  • Fifth consecutive year of record production and sales volume, with silver equivalent output of 35.8 million ounces (26.8 million ounces of silver and 151,000 gold ounces), up 22% from 29.4 million SEQ in 2012.
  • Attributable silver equivalent sales volume for the three months and year ended December 31, 2013 of 8.0 million ounces (6.1 million ounces of silver and 31,200 ounces of gold) and 30.0 million ounces (22.8 million ounces of silver and 117,300 ounces of gold), respectively, representing a decrease of 13% during the three-month period and an increase of 10% during the twelve-month period as compared to the comparable periods in 2012.
  • Revenue for the three months and year ended December 31, 2013 of $167.4 million and $706.5 million, respectively, compared with $287.2 million and $849.6 million for the comparable periods in 2012, representing a decrease of 42% and 17%, respectively.
  • Net earnings for the three months and year ended December 31, 2013 of $93.9 million ($0.26 per share) and $375.5 million ($1.06 per share), respectively, compared with $177.7 million ($0.50 per share) and $586.0 million ($1.66 per share) for the comparable periods in 2012, representing a decrease of 47% and 36%, respectively.

Source:

As can be seen from below all-time chart of the company, its stock price has appreciated with approx. 700 percent since it went IPO in December 2004.

PALLADIUM PRICES AT HIGHEST LEVEL SINCE AUGUST 2011:
The price of precious metal palladium hit its highest level since August 2011 on Friday as a miners’ strike in South Africa ground on and concerns grew that the standoff between major producer Russia and the West over Ukraine could escalate.

Palladium beside being used in Jewellery and asset protection vehicle, is a key metal in autocatalyst and several scientific instruments.

Russia and South Africa produce nearly 80 percent of the world’s palladium.

Spot palladium increased on Friday with US$ 25.00 an ounce or 3.26 percent, to close at a 2.5 year high of US$791.00 an ounce as can be seen from below chart.

palladium 2 year chart

PGM CAPITAL COMMENTS:

FedEx:
The reported earnings of FedEx Wednesday, March 19, 2014, can only be described as mediocre. The company missed on the top and bottom line, and like so many other companies, blamed its weakness on the weather.  The company trimmed its profit forecast for the full year to a range of US$6.55 to US$6.80 a share, from US$6.73 to US$7.10.

Furthermore, as the biggest USA courier corporation, the company earnings report also gives an indication on the health of the USA Economy.

Based on its closing price of Friday, March 21st, the stock of the company has a P/E ratio of 26 and a very poor dividend yield of only 0.4 percent. As a consequence of this we have a HOLD-SELL rating on the stock of the company.

Silver Wheaton:
The company invested in 2013 over US$2 billion for four precious metals streams without issuing any new shares.

The company expects 2014 silver equivalent production of 36 million ounces, roughly unchanged from 2013. By 2018, the company sees 48 million ounces of production, up 35% from last year.

Based on company fundamentals, P/E ratio of 19, dividend yield of 1.4 percent, a quick ratio of three, we have a STRONG BUY rating on the stock of the company and own the stock in our own portfolio, directly or via Silver-miners ETF in several clients’ portfolios.

Below 2-year chart shows that the stock of Silver Wheaton Corporation has outperformed both the Silver Price as well as the Silver miners ETF.

Blue Chart = Silver Wheaton, Red Chart = Silver price, Green Chart = Silver Miner ETF

Palladium:
Based on the shortage of palladium, its usage in Jewellery, Asset protection vehicle as well as its industrial usage, mainly in the automotive industry, we are very bullish on the price of palladium and hold it in our personal as well as in several clients’ portfolios.

Below chart shows the industrial usage of Palladium versus the other precious metals, Platinum, Gold and Silver.

It is also worth mentioning that Palladium is the only precious metal that hasn’t gone through a correction last year.

Palladium ETFs currently hold some 1.634 million ounces of the metal, worth around US$1.29 billion at today’s prices.

Before following any investing advice, always take your investment horizon and risk tolerance into consideration and keep in mind that the price of Commodities, Precious metals as well as the stocks of their producers can be very volatile and that sharp corrections may happen in the short term.

Yours Sincerely,

Eric Panneflek

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