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Silver Wheaton Corp. Reports Record Q2 Silver Production and Sales: Should You Buy Now?

Silver Wheaton Corp. (TSX:SLW)(NYSE:SLW), the largest pure precious metals streaming company in the world, announced second-quarter earnings results after the market closed on August 11, and its stock has responded by rising over 3.5% in the trading sessions since. Let’s break down the quarterly results to determine if we should consider buying in to this rally, or if we should wait for it to subside.

Record production leads to record sales volumes

Here’s a summary of Silver Wheaton’s second-quarter earnings results compared with what analysts had anticipated and its results in the same period a year ago. All figures are in U.S. dollars.

Metric Reported Expected Year-Ago
Earnings Per Share $0.13 $0.13 $0.18
Revenue $164.44 million $157.35 million $148.57 million

Source: Financial Times

Silver Wheaton’s earnings per share decreased 27.8% and its revenue increased 10.7% compared with the second quarter of fiscal 2014. The company’s double-digit percentage decline in earnings per share can be attributed to its net income decreasing 15.4% to $53.73 million, led lower by its total costs of sales increasing 36.9% to $101.12 million, and its weighted average number of diluted shares outstanding increasing 12.9% to 404.31 million.

Its strong revenue growth can be attributed to its total sales increasing 34% to a record 10 million silver equivalent ounces, which more than offset the negative impact of its average realized price per silver equivalent ounce sold decreasing 17.4% to $16.38.

Here’s a quick breakdown of 10 other notable statistics from the report compared with the year-ago period:

  1. Total production increased 29% to a record 10.9 million silver equivalent ounces
  2. Production of silver increased 14.1% to 7.2 million ounces
  3. Silver sales increased 6.7% to 5.58 million ounces
  4. Average realized price of silver decreased 17.1% to $16.42 per ounce
  5. Average cash cost per ounce of silver increased 2.7% to $4.26
  6. Production of gold increased 54.2% to 50,509 ounces
  7. Gold sales increased 75.3% to 60,974 ounces
  8. Average realized price of gold decreased 7.7% to $1,195 per ounce
  9. Average cash cost per ounce of gold increased 0.5% to $395
  10. Cash generated from operating activities increased 6.6% to $109.29 million

Silver Wheaton also announced that it will be maintaining its dividend $0.05 per share in the third quarter, and it will be paid out on September 4 to shareholders of record at the close of business on August 26.

Should you buy or avoid the rally?

It was a great quarter overall for Silver Wheaton, so I think its stock has responded correctly by moving higher. I also think this could be the start of a sustained rally higher because I think silver and gold prices will recover over the next year and because the stock still trades at attractive forward valuations.

First, I think silver and gold prices will slowly recover over the next 52 weeks, with the price of silver heading back towards about $18.50 per ounce and the price of gold heading back towards about $1,200 per ounce, which will lead to higher sales and profitability for Silver Wheaton.

Second, Silver Wheaton’s stock trades at 28.9 times fiscal 2015’s estimated earnings per share of $0.62 and 23.3 times fiscal 2016’s estimated earnings per share of $0.77, both of which are very inexpensive compared with the industry average price-to-earnings multiple of 42.6, the latter of which is inexpensive compared with its five-year average multiple of 27.4. Also, as silver and gold prices recover, I think these earnings estimates will rise significantly.

With all of the information above in mind, I think Silver Wheaton represents the best long-term investment opportunity in the silver industry today. Foolish investors should strongly consider beginning to scale in to positions over the next couple of trading sessions.

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Fool contributor Joseph Solitro has no position in any stocks mentioned. The Motley Fool owns shares of Silver Wheaton. (USA). Silver Wheaton is a recommendation of Stock Advisor Canada.

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