Does Hecla Mining Deserve a Place in Your Portfolio?

April 11, 2022 at 07:06 AM EDT

America's biggest silver producer, Hecla Mining (HL), recently generated its second-highest free cash flow in the past 130 years. But is it wise to buy the stock now even though COVID-19 cases are rising? Read on. Let’s find out.

Hecla Mining Company (HL) in Coeur d'Alene, Idaho, discovers, acquires, develops, and produces precious and base metal properties internationally. The company reported mixed fourth-quarter results. While its revenue for the quarter came in at $185.10 million, it missed the consensus estimate by 6.3%. However, HL’s $0.02 EPS met the Street’s estimate.

The stock has declined 3.3% in price over the past month to close Friday’s trading session at $6.75. In addition, it is currently trading 28.5% below its 52-week high of $9.44, which it hit on June 14, 2021.

The resurgence of COVID-19 cases in many countries makes the company’s near-term outlook uncertain because its production could be hampered again by labor shortages.

Click here to check out our Gold and Silver Industry Report for 2022

Here is what could influence HL’s performance in the upcoming months:

Low Profitability

In terms of trailing-12-month net income margin, HL’s 4.35% is 50.5% lower than the 8.78% industry average. Its 0.30% trailing-12-month asset turnover ratio is 57% lower than the 0.69% industry average. Furthermore, the stock’s trailing-12-month 1.99%, 3.31%, and 1.29% respective ROCE, ROTC, and ROTA are lower than the 12.86%, 7.43%, and 5.50% industry averages., respectively.

Stretched Valuation

In terms of forward non-GAAP P/E, HL’s 56.29x is 335.6% higher than the 12.92x industry average. Its 4.54x forward P/S is 220.4% higher than the 1.42x industry average. Furthermore, the stock’s 34.61x and 4.94x respective forward EV/EBIT and EV/S are higher than the 11.03x and 1.72x industry averages.

Unfavorable Analyst Estimates

For the quarter ending June 30, 2022, analysts expect HL’s EPS and revenue to decline 50% and 12.3%, respectively, year-over-year to $0.03 and $192.40 million. In addition, its EPS is expected to decrease by 33.4% per annum over the next five years.

POWR Ratings Don’t Indicate Enough Upside

HL has an overall C rating, which equates to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. HL has a C grade for Value, which is in sync with its higher-than-industry valuation ratios.

The stock has a C grade for Quality, which is in sync with its lower-than-industry profitability ratios. In addition, HL has a C grade for Stability, consistent with its 2.06 beta.

HL also has a C grade for Growth and a D grade for Sentiment. This is justified because analysts expect its EPS and revenue to decline in the near term.

HL is ranked #26 among 47 stocks in the D-rated Miners - Diversified industry. Click here to access all of HL’s ratings.

Bottom Line

HL's near-term prospects look uncertain due to concerns over production-related hurdles and rising freight costs. Since the stock looks overvalued at its current price level, we think it could be wise to wait for a better entry point.

How Does Hecla Mining (HL) Stack Up Against its Peers?

While HL has an overall POWR Rating of C, one might want to consider investing in the following Miners - Diversified stocks with an A (Strong Buy) or B (Buy) rating: Lundin Mining (LUNMF), South32 Limited (SOUHY), and Anglo American Platinum Limited (ANGPY).

Click here to check out our Gold and Silver Industry Report for 2022

HL shares were trading at $6.77 per share on Monday morning, up $0.02 (+0.30%). Year-to-date, HL has gained 29.81%, versus a -6.57% rise in the benchmark S&P 500 index during the same period.

About the Author: Nimesh Jaiswal

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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