About Teck Resources
If you ask me, copper is the new gold.
But hardly anyone ever asks me outside of this medium, but if you were to ask me, sure, the more common metals such as gold and silver are always going to remain staples, however, in terms of growth as it relates to diversified global demand, I truly have many reasons to believe that copper is the commodity of the future.
Admittedly, I have a sort of love, hate relationship with companies that are so heavily driven by external, prone-to-fluctuation commodity prices, the honeymoon phases occurring when there is an upswing in the price of said commodity and the rampant thoughts of divorce phase settling in when the price dribbles down, but hey, this is the world that Vancouver, British Columbia-based Teck Resources lives in and has lived in since 1906.
As we have seen in past stock analysis articles on other specialized mining companies, this is just about as supply and demand driven as it gets, with mining operators such as Teck having to constantly reconfigure and adjust their global business operations with the prices and preceding global demand that tends to vary each and every single day.
In other words, to a very large degree, supply has to move in lockstep with demand, and a company such as Teck Resources better be pretty darn good at making this happen.
I’m simply not going to dive too much deeper into the rather basic and intuitive supply and demand mechanics of the industry, primarily because I’ve written about them far more extensively in other recent articles, one being about gold.
But what I will readily offer is a quick note on why I am so bullish on the demand for copper in the short, intermediate and long-terms. Primarily, with all of these relatively new macro initiatives and ideas, such as the electrification of vehicles, the buildout of solar energy across the United States alone, increased infrastructure spend in the years to come in order to simply update the roads and buildings we all find ourselves in, materials used to construct each country’s military branches, not to also mention as it also directly pertains to data center infrastructure, which is surely going to grow as artificial intelligence and cloud computing does, among the many other applications copper has in furthering the buildout as well as solidifying the physical integrity of these venues.
Therefore, I see a demand-riddled future for copper.
As it more relates to Teck, one could probably initially imagine, given my notes on copper, that this is indeed a company that happens to mine a lot of copper, and with that, is a potential direct beneficiary of these buildouts, in addition to the other core precious metals it mines around the world, such as Zinc and steelmaking coal, both materials also being important agents of our futures on this earth.
Now that a little bit of groundwork has been laid with respect to Teck Resources, I am just dying to learn more about this company through a strictly financial lens, so why don’t I just hush up and get to the good stuff?
Teck’s stock financials
Teck, a $25 billion company according to its prevailing market capitalization, is trading at a share price of $47.62 and shows a price-to-earnings (P/E) ratio of 21.47 and also pays out an annual dividend of $0.36 to each outstanding share out there in the investor-verse, making this already sort of an intriguing prospect given that its present price-to-earnings ratio isn’t completely unreasonable as compared to the commonly held, fair value benchmark of 20, where anything with a P/E that is greater than 20 indicates that a stock price is trading at a level that is above fair value, or in layman’s terms, is overvalued.
It seems as though Teck’s shares (NYSE: TECK) are ever so slightly overvalued, which, given my previously held beliefs regarding a certain commodity that it fiercely mines, you can probably tell how I feel about this company’s valuation, and like the opposite of Teck’s business operations, we don’t need to really dig into that any further; I am bullish on copper and given this company’s current valuation, I am not stressed nor deterred by any means.
Moving onto the company’s balance sheet, Teck Resources’ executive team is in charge of taking care of and properly deploying just about $42.4 billion in terms of total assets along with just north of $22 billion in terms of total liabilities, which, for such an equipment-heavy and commodity price-subjected company such as this one, is, at the risk of sounding like a weirdo, a beautifully crafted balance sheet and tells me that this mining firm is ready for any upcoming commodity and/or supply and demand-rooted headwinds and storms that may come its way, with what it owns weighing nearly double than that of which it owes.
Regarding the condition of the company’s income statement, Teck’s recent revenues (starting off in 2019 up to its most recent report in 2023, in particular) have been trending in the right (and upward) direction, enduring some ups and downs, but what else is to be expected given the line of business this company is in. For instance, within the aforementioned timeframe, Teck’s recent annual revenues have ranged from a relative low of $7 billion (2020) and a relative peak of $12.7 billion, as reported in 2022, which just about adds up given that the world practically shut down during 2019 and 2020 and with that, manufacturing facilities, progress with infrastructure projects across the globe along with other demand streams were being actively cut off during COVID-19.
Of course, with my opinions regarding the organic demand for copper alone, I do have my fair share of fact-based assumptions as they relate to Teck’s future revenues growing, however, once again, being that it operates as a price taker (i.e., is constantly forced to adjust its operations, and supply forecasts based upon demand that it simply cannot ever control), one should always be braced and mentally prepared for quarter-per-quarter as well as annual revenue undulations, especially in the short-term.
With that note, the company’s total cash from operations throughout the same time period, according to the figures shown on its cash flow statement, have also maintained some very mild ups and downs, ranging between just a little over $1.2 billion during when else but 2020 and a corresponding high of $5.8 billion, as reported in 2022, tracking well in line with its previously stated revenues during those same exact years.
Now, allow me to gloss over the company’s net profit margin and how it weighs against that of some of its core competitors.
Teck’s stock fundamentals
According to the figures displayed on Charles Schwab’s platform, Teck Resources has a net profit margin of 10.29%, which is frankly on the lower end of some of its competitors, such as Barrick Gold and Wheaton Precious Metals, each respectively touting net profit margins in the orders of 18.88% and 53.74%, and while Teck’s obviously trails each, it still isn’t an awfully puny net profit margin in general and in the context of most objective terms, not to also mention that I’ve seen it time and time again where ginormous global enterprises will have comparably smaller net profit margins with respect to the competition, largely by virtue of being as large and scaled as they are, as the mining space requires a great deal of investment and reinvestment in equipment alone (among other necessary costs) and when you mine as much as this company does and at as large of a scale as it does, a somewhat smaller net profit margin is only natural, that is, so long as Teck’s isn’t unnaturally small.
Thankfully, it is not.
Should you buy Teck Resources stock?
I am and will forever and always be an objective, long-term thinker.
Even outside of the investing arena, I always tend to focus on the downside as well as the current actions I could take and the likely consequences that would follow.
The same goes for the current supply and demand trends as they relate to copper.
In keeping this in mind, I am a bull on copper and when considering the company’s reasonable valuation, its fortified balance sheet, its recent annual revenues that are trending upwards, along with its most recent total cash from operations figures and its fine net profit margin, I think Teck is a great yet underappreciated potential long-term play for the commodity-fearless investor.
Hence, the “buy” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.
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