Is Now the Time to Buy Antofagasta?

LONDON -- I'm always searching for shares that can help ordinary investors like you make money from the stock market.

So right now I am trawling through the FTSE 100 and giving my verdict on every member of the blue-chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.

Today I am looking at Antofagasta  (LSE: ANTO  ) (NASDAQOTH: ANFGY  ) to determine whether you should consider buying the shares at 1,075 pence.

I am assessing each company on several ratios:

  • Price/Earnings (P/E): Does the share look good value when compared against its competitors?
  • Price Earnings Growth (PEG): Does the share look good value factoring in predicted growth?
  • Yield: Does the share provide a solid income for investors?
  • Dividend Cover: Is the dividend sustainable?

So let's look at the numbers:

Stock

Price

3-Yr. EPS Growth

Projected P/E

PEG

Yield

3-Yr. Dividend Growth

Dividend Cover

Antofagasta

1,075p

87%

12.5

N/A

1.2%

100%

7

The consensus analyst estimate for this year's earnings per share is $1.32 (no change) and dividend per share is $0.50 (up 150%).

Firstly, I should mention that although the consensus analyst estimate for this year's dividend is $0.50 per share, Antofagasta has consistently missed such dividend forecasts for the past five years. Therefore, based on the company's dividend history, I believe the payout for this year may well be left unchanged at $0.20 per share.

Anyway, trading on a projected P/E of 12.5, Antofagasta appears more expensive than its peers in the mining sector, which are currently trading on an average P/E of around 10.

Unfortunately, its P/E and lack of growth give an abnormally high PEG ratio of 12.5, which cannot help my analysis.

Antofagasta offers a 1.2% yield, which is about half of the sector average. However, the company has a three-year compounded dividend growth rate of 100%, implying the yield could soon catch up to that of its peers.

Indeed, the dividend is covered seven times by earnings, giving Antofagasta plenty of room for further payout growth.

Antofagasta's growth is slowing and the company is trading at premium to its competitors
As I say, similar to its peers within the rest of the mining sector, Antofagasta's growth is slowing as weaknesses in the global economy put pressure on commodity prices.

That said, Antofagasta has managed to increase production at its mines during the past year, which has to some extent offset falling commodity prices. Indeed, during 2012, Antofagasta increased its production of copper by 11% and gold by 53%.

In addition to mining operations, Antofagasta owns the largest non-state controlled railway in Chile as well as a water distribution company that supplies 144,000 households. However, income from these operations amounts to about only 5% of total group revenue.

Lastly, I should mention the group's balance sheet. In particular, unlike the majority Antofagasta's peers, which have net debt positions, as of Sept. 2012, Antofagasta had net cash of just under $4 billion, which is about 37% of the company's total market capitalization.

After taking all of that into account, I believe Antofagasta deserves a premium over its peers. So overall, I feel now looks to be a good time to buy shares at 1,075 pence.

More FTSE opportunities

In addition to Antofagasta, I am also positive on the FTSE 100 share highlighted in this exclusive free report. You see, the blue chip in question offers a 5.7% income, its shares might be worth 850 pence compared to about 700 pence now, and it has just been declared "The Motley Fool's Top Income Stock for 2013."

Just click here to read the report -- it's free.

In the meantime, please stay tuned for my next verdict on a FTSE 100 share.


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