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Bear of the Day: First Majestic Silver (AG)

First Majestic Silver (AG) is a Zacks Rank #5 (Strong Sell) that engages in the acquisition, exploration, development, and production of mineral properties with a focus on silver and gold production in North America.

Earlier in the year, the stock had a nice run higher as gold and silver prices were hitting highs. However, the metals have slumped since April and with them came the miners.

First Majestic Silver has not been spared from the mining rout. The stock is 50% off the 2022 highs and with silver and gold prices drifting lower, earnings estimates are falling as well.

About the Company

First Majestic is headquartered in Vancouver, Canada. The company was founded in 1979 and employs over 5,300. The company owns 100% interest in multiple mines across the United States, Canada and Mexico.

AG is valued at $2.1 billion and has a Forward PE of 133. The company holds a Zacks Style Scores of “F” in Value, Growth and Momentum. The stock pays out a dividend of 0.3%.

Q2 Earnings

The company reported EPS in early August, seeing a miss of 140%. An earnings miss for this company is not uncommon as this was the sixth in a row.  

The company reported Q2 at -$0.32 v the $0.06 expected. Revenue came in at $159.5M, which was above last years $154.1M. The company raised their dividend 1.7% and guided Q2 silver production to 32.6-34.6M oz.

The stock bounced on the earnings numbers, moving from lows of the year to $8.60, a move of 36%. While the AG is well off its highs, this rally doesn’t seem deserved when looking at the earnings estimates.

Estimates

Over the last 30 days, numbers have been taken down across all time frames.

For both the current and next quarter, estimates have dropped from $0.10 to $0.00. For the current year, we see a 70% drop, from $0.20 to $0.06.

Next year the trouble continues, with estimates falling to $0.47 from $0.70, or 33%.

With estimates going lower, price targets are dropping as well. Roth Capital kept their Buy rating, but lowered their target to $8 from $11. H.C. Wainright also has a Buy on the stock, but dropped their target to $11.50 from $12.50.

Technical Take

The stock took off early in 2021 when gold and silver broke higher. But with silver prices falling off a cliff and gold slumping lower, so has the stock.

Price now approaches the 2020 COVID lows of $5. This was a support level seen all the way back to 2015 and it looks like investors will be riding the stock lower to that level.

The good news is that the stock is above the 50-day MA at $7.50. However, if that breaks those COVID lows are in play.

If the stock can get going on any rally in the metals. The 200-day MA at $10.30 should be sold.

In Summary

First Majestic is a great stock to own when the metals are in favor. But in an environment of rising interest rates and slumping metals prices, any miner will struggle.

For now, a better option in the sector might be MAG Silver (MAG). The stock is a Zacks Rank #3 (Hold) that is coming off a 33% EPS beat.     


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