Hudbay Minerals (NYSE:HBM) is a Canadian mining company with a relatively small market cap of under $4 billion. Though the company isn’t large, its expanding portfolio and focus on copper and gold mining could set it up for considerable growth in the years to come. Today, let’s take a look at Hudbay Minerals to see where the company is today and where HBM stock could be in five years.
Thanks to its existing properties, HBM has the advantage of already being profitable. In the last 12 months, for example, management has reported a net margin of 7.4 percent. While not especially high, this margin has a good chance of rising in the coming years as the company scales up by bringing more projects online.
What Could Hudbay’s Growth Look Like Over the Next Five Years?
Although HBM offers a decent mix of mining from its Canadian sites, there’s little disputing the fact that the firm’s main metal focus is in the area of copper mining. Between the Peruvian and American mines, it is in an excellent position to increase copper supply over the coming years, helping to fill the aforementioned gap between supply and demand that is expected to prevail over the rest of this decade.
Looking even a bit further out, that gap is expected to continue widening as we enter the 2030s. Global copper demand is expected to reach 50 million metric tons a year by 2035, driven by the ongoing transition to green energy.
While this may not have a direct impact on HBM’s performance in the next five years, it’s still worth keeping in mind for investors looking at the stock’s long-term potential.
Due to both the increase in copper mining capacity and the projected increase in copper prices, analysts predict a fairly brisk rate of earnings growth for HBM in the near future.
The forward earnings growth rate for the company is currently projected at about 45 percent. While such a high rate is quite unlikely to prevail throughout the rest of the decade, it does illustrate how much the company’s earnings could increase.
Hudbay’s Current Performance
Hudbay is already turning in some fairly respectable performance for its shareholders. In Q1, for instance, the management team reported revenues of $595 million, an increase of over 13 percent from the year-ago quarter. The majority of this revenue came from copper, but rising gold prices drove the precious metal’s portion of the revenue mix slightly higher to 38 percent.
Net income also increased, rising to slightly over $100 million. This was a massive increase from the prior year’s Q1, when net income was just $21.2 million. This increase reflected both higher prices for the metals Hudbay mines and the company’s ongoing cost control efforts, both of which have worked heavily in its favor.
Thanks in part to the company’s gold exposure, it has also been able to generate significant free cash flow over the last several quarters. In Q1’s report, Hudbay detailed trailing 12-month FCF of over $350 million.
Shareholders can also expect to see its operating cash flows increase by about $56 million for every 10 percent jump in the price of gold and $100 million for every 10 percent jump in copper. With both of these metals expected to keep rising for several more years, Hudbay appears to be quite well-situated to produce a steady stream of cash flow.
HBM’s Valuation
HBM currently appears to have a fair, though not especially discounted, valuation. Shares trade at 1.7 times sales and 24.7 times earnings.
Given the growth forecasts from existing mines and developing new properties, this somewhat premium P/E ratio is likely justified.
Analysts also currently view HBM shares as being essentially fairly valued right now. The consensus price target for the stock is currently $9.50 per share, just a tiny bit above its most recent price of $9.37.
Where Will HBM Be in Five Years?
Although it’s extremely difficult to set long-term prices on mining stocks due to the fluctuations of the commodity markets, we may be able to get at least a sense of the HBM’s trajectory in five years by using its operating cash flows as a guide. Right now, the stock is trading at about 13.4 times operating cash flow, and the company itself has provided what are likely fairly accurate estimates of how future price increases in gold and copper could impact its cash flows.
With a reasonable price-to-cash-flow ratio and prices for both gold and copper likely to keep climbing over the coming years as demand outstrips supply, it seems likely that HBM shares will continue rising alongside the prices of the metals it produces. This is especially true as it increases its production, thus building its cash flows even more.
Over the next five years, it seems far from inconceivable that HBM’s shares could more than double in price. Upward pressure on gold and especially copper prices will likely continue to increase the company’s revenues, earnings and cash flows.
HBM, meanwhile, can continue to benefit from its careful cost controls and development of new mining projects. Though there’s almost always a fairly heavy dose of uncertainty where mining stocks are concerned, HBM looks like it could be a good play on rising commodity prices to buy now and hold for the long run.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.