Gold prices have broken out to new highs this year, with investors in the precious metal making unexpectedly robust returns from the popular safe-haven investment. The bullish price action in the yellow metal stems from strong buying demand from central banks worldwide, along with a multitude of other factors - including surging geopolitical tensions, escalating U.S. debt, and concerns over the dollar's eroding value.
These tailwinds have pushed gold to new record highs, with spot gold (GCY00) hitting a new all-time best of $2,684.45 in today's session, and December-dated gold futures (GCZ24) - the most active contract - peaking above $2,708 earlier. Gold is now up 29.5% on a YTD basis, outperforming both the S&P 500 Index ($SPX) (+20.5%) and the tech-heavy Nasdaq Composite ($NASX) (+21.2%).
The recent Federal Reserve rate cut, which marked a historic pivot toward easing by the central bank, is also bullish for gold. Historically, gold prices have often risen in tandem with interest rate reductions, further cementing the positive outlook for the precious metal.
One way for investors to add exposure to additional upside in gold is by investing in related stocks - like Franco-Nevada (FNV), which appeared on the radar recently due to some notable insider buying activity. Here's a closer look.
About Franco-Nevada Stock
Founded in 1983 and based out of Toronto, Franco-Nevada (FNV) is a Canadian gold company that specializes in royalty and stream agreements. Unlike traditional mining companies that own and operate mines, Franco-Nevada generates revenue by acquiring royalties and streams on existing or future mining projects. This business model provides the company with exposure to a diversified portfolio of mining assets, without all of the expenses and risks associated with mine ownership. Its market cap currently stands at $25 billion.
FNV stock is up 16.2% on a YTD basis, and it also offers a dividend yield of 1.12%, based on the current quarterly payout of $0.36.
Franco-Nevada has raised its dividend for 17 consecutive years, with the last increase of 5.88% issued in January 2024. With a relatively conservative payout ratio of 42.17%, FNV's dividends are well-covered, with plenty of room for continued growth.
At least one investor thinks the stock is a good value around current levels. On Sept. 16, Franco-Nevada board member Hugo Dryland bought 805 shares of the company at an average price of $124.2250 per share, for a total transaction value of $100,001.
This was the first insider buy on FNV since May - and the largest single transaction since 2013, when the shares were trading below $45.
Franco-Nevada's Financial Performance
Franco-Nevada reported its latest results on Aug. 13, with negative impacts from the stalled Cobre Panama mine, which has become a political flashpoint.
Total revenues for Q2 2024 were $260.1 million, down 21.1% from the prior year. Excluding Cobre Panama, revenue was up 0.7%. Gold equivalent ounces (GEOs) sold in the quarter fell 35% to 110,264 GEOs. Adjusted earnings fell by 21% during the period to $0.75 per share, missing the consensus estimate of $0.75.
Net cash from operating activities fell 26% to $194.4 million, and Franco-Nevada exited the quarter with zero debt and $2.4 billion in available capital.
For the full year, “We expect to be at the lower end of our GEO guidance range, taking into account lower relative prices from our other commodities,” said CEO Paul Brink. That would place 2024 output on the low end of 480,000 to 540,000 GEOs, based on the company's current forecast.
Operational & Strategic Strength
With over 85% of its revenues derived from the Americas, the company’s portfolio might appear to lack diversification. However, despite a heavy skew toward precious metals - over 62% comes from gold, with 76% from precious metals overall - no single asset contributes more than 15% to total revenues.
In 2023, the company expanded its royalty interests in gold mines and projects across Canada, Chile, Australia, and the United States. Since its IPO, FNV's reserves from existing assets have increased by 3.5 times, enhancing the company’s future earnings potential.
With natural gas (NGV24) set to fuel the data center boom, Franco-Nevada has also expanded into the Haynesville shale region through a $125 million acquisition of 1,400 net acres, which produced roughly 6,500 Mmcf of gas last year from producers like Southwestern (SWN), Chesapeake (CHK), and Comstock (CRK).
The company's asset-light business model, where it earns through royalties rather than direct mining, offers a buffer from operational risks like labor expenses and exploration costs. Its limited exposure to cost inflation, high margins, and diversified portfolio all position the company for sustained profitability.
Looking ahead, Franco-Nevada aims to produce over 540,000 GEOs by 2028, implying at least 10% organic growth.
Analysts See More Upside Ahead
Analysts are upbeat, with a consensus rating of “Moderate Buy” for FNV stock. Out of 13 analysts in coverage, 7 have a “Strong Buy” rating, 1 has a “Moderate Buy,” and 5 maintain a “Hold” recommendation.
The mean target price for FNV among this group is $147.69. This indicates expected upside potential of about 14.7% from current levels.
