Headquartered in Vancouver, Canada, established mining company Teck Resources Limited (TECK) has grown significantly over the past few years. Its Neptune port upgrade project is operational and ramping up to full capacity, and the new facility is being integrated into its logistics chain, which is expected to reduce costs, enhance flexibility, and improve performance. The stock has gained 17.8% in price over the past month to close yesterday’s trading session at $25.32.

However, it is currently trading 14.3% below its 52-week high of $27.08, which it hit on September 15, 2021. In March 2021, TECK pleaded guilty to two charges that it violated the country’s Fisheries Act, and agreed to pay a CAD60 million ($46.91 million) penalty.

Furthermore, we think rising COVID-19 cases due to the rapid spread of the Delta variant, and increasing wildfires, make the company’s near-term outlook uncertain because its production could be significantly impacted.

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

Solid Financials

TECK’s revenues surged 48.7% year-over-year to CAD2.56 billion ($2.01 billion) for its fiscal second quarter, ended June 30, 2021. In addition, its adjusted EBITDA grew 103.9% year-over-year to CAD989 million ($777.49 million). Its adjusted profit came in at CAD339 million ($266.50), representing a 280.9% year-over-year increase. And its  adjusted EPS came in at CAD0.63, up 270.6% year-over-year.

Reasonable Valuation

In terms of forward P/B, TECK’s 0.73x is 65.6% lower than the 2.13x industry average. Likewise, its 4.23x forward P/CF is 47.2% lower than the industry 8.01x average. . Moreover, the stock’s 7.89x and 7.33x respective forward non-GAAP P/E and EV/EBIT are lower than the 13.63x and 11.09x industry averages.

Disappointing Management Guidance

Wildfires in British Columbia negatively affected TECK’s operations in the third quarter. Consequently, the company has reduced 2021 annual refined zinc production guidance to 285,000 – 290,000 tonnes from 290,000 – 300,000 tonnes. 

Concentrate shipment timing from Highland Valley Copper has also been impacted due to wildfires and logistics disruptions, and they are not expected to eliminate the differential from  higher production than sales in the first half of 2021.

At TECK’s steelmaking coal operations in the Elk Valley, annual production is expected to be at the lower end of the current guidance range due to the impact of wildfires, compounded by increased absenteeism associated with COVID-19 exposure isolation protocols.

POWR Ratings Reflect Uncertainty

TECK has an overall rating of C, 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. TECK has a C grade for Stability, which is in sync with its 1.16 beta. The stock has a D grade for Quality. This is justified because TECK’s trailing-12-month ROCE, ROTC, and ROTA of 0.78%, 2.21%, and 0.38%, respectively, compare to 12.35%, 6.93%, and 5.07% industry averages..

TECK is ranked #22 of 38 stocks in the D-rated Industrial – Metals industry. Click here to access TECK’s ratings for Growth, Value, Quality, and Sentiment as well.

Click here to check out our Industrial Sector Report for 2021

Bottom Line

Even though TECK reported impressive second-quarter earnings results, its near-term prospects seem uncertain because of the growing number of COVID-19 cases and increasing wildfires. In addition, hedge fund’s interest in the stock has declined lately. So, we think it could be wise to wait for a better entry point in the stock.

How Does Teck Resources (TECK) Stack Up Against its Peers?

While TECK has an overall POWR Rating of C, one might want to consider investing in the following Industrial – Metals stocks with an A (Strong Buy) rating: Ryerson Holding Corporation (RYI), Atkore International Group Inc. (ATKR), and Norsk Hydro ASA (NHYDY).

TECK shares were trading at $24.70 per share on Wednesday afternoon, up $1.51 (+6.51%). Year-to-date, TECK has gained 36.55%, versus a 18.44% 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. More...

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