Why First Majestic Silver Corp Might Keep Losing Its Luster

Does this analyst make a good case? Or is it just more noise from Wall Street?

| More on:
The Motley Fool

While Fools should generally take the opinion of Wall Street with a grain of salt, it’s not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades — just in case their reasoning behind the call makes sense.

What: Shares of First Majestic Silver Corp (TSX:FR) slipped slightly in premarket trading Thursday after TD Securities downgraded the silver explorer from buy to hold.

So what: Along with the downgrade, analyst Daniel Earle reiterated his price target of $15.50, representing about 24% worth of upside to yesterday’s close. While contrarians might be attracted to yesterday’s earnings-related pullback, Earle thinks that First Majestic’s forward valuation isn’t too attractive relative to other silver miners.

Now what: According to TD, First Majestic’s risk/reward tradeoff is pretty balanced at this point. “Q4/13 cash costs were slightly higher than we had anticipated, while capital expenditures were in line,” noted Earle. “With the company expected to generate negative free cash flow in 2014 and as it is now trading in line with its peers on our estimates, we are downgrading our recommendation to HOLD (from Buy).”

Of course, with First Majestic still off about 30% from its 52-week high, that bearishness might be providing resource-savvy Fools with a shiny long-term opportunity.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned.

More on Investing