Money and Investing Thoughts

Silver Wheaton (SLW: 36.11 0.00 0.00%) has reported 4th quarter and 2007 results with record revenues and profits. For 2007 the company sold 13.1 million oz. of silver with net earnings of $91.9 million, or 41¢ per share. 2006 closed out with 13.5 million oz. sold, $85.2 million and 40¢ net. Fourth quarter 2007 and 2006 were both at 11¢ cents per share net with 3.5 million oz. sold each Q4.

Even though the stock price has rallied strongly on the news, I find the relatively flat year over year sales and earnings a little disconcerting for a stock sporting a 40 PE. The average estimate for 2008 is 55¢ in earnings, for a forward PE of around 30. With the company forecasting to sell 25 million oz. by 2010 I calculate a compounded annual growth rate of about 25%. The shares look fully valued to me.

Silver Wheaton is a uniquely structured precious metal company with excellent growth prospects. They contract with mines to purchase a portion or all of their silver production at a set rate (currently around $4/ oz.), then are able to resell the silver at market rates. These mines have another metal (like gold or zinc) as primary production and the silver is a by-product. SLW has worked to add future silver production since the company started in 2004. The company has very low overhead and currently pays now taxes. Earnings growth can come from increase production at current mines, future production from recently contracted mines and higher silver prices.

Although this company’s earnings will be growing over the next couple years, there could be setbacks. The biggest hurdle is having silver production come on line when forecast. There have been delays in the past and I expect there will be more in the future. SLW’s prospects are also, obviously, tied to market silver prices.

The bottom line for me is, I think the share price is fully valued at this time and does not allow for any disappointments. If someone was looking to buy or add shares, I would wait for some sort of pull back, on challenging company or market news. Silver Wheaton was an early component of this site’s 20 Stock Portfolio. Share price was $11.16 when it was added. The share price has been quite volatile, and I am sure there will be buying opportunities in the future.

Note: I currently do not have a position in SLW.