Royal Gold's Buy Upgrade Reinforces Stance on Gold Leverage and Growth Initiatives

What happened

Seeking Alpha upgraded Royal Gold to Buy, highlighting robust financials and accelerating growth from recent deals like Sandstorm and Horizon. This aligns with DeepValue's existing BUY rating, which points to record 2024 revenue of $719 million and strong operating cash flow of $530 million. The company's capital-light model and 76% gold exposure benefit from supportive market fundamentals, though filings caution on execution and permitting risks. Recent transactions, including the Warintza project with staged payments, add growth optionality but depend on milestone achievements. Overall, the upgrade echoes confidence in RGLD's strategy but doesn't overlook the persistent vulnerabilities in its non-U.S. concentrated portfolio.

Implication

The upgrade reinforces RGLD's appeal for those betting on sustained gold strength, given its high revenue sensitivity and dividend growth track record. However, the stock's premium valuation demands flawless execution of new deals and stable operator performance to justify current multiples. Any delays in Warintza milestones or adverse gold price movements could quickly erode cash flow and investor sentiment. With 83% of revenue from non-U.S. sources, geopolitical and permitting issues pose ongoing threats that require close monitoring. Ultimately, while the growth narrative is compelling, prudence is warranted given the elevated risks embedded in the business model.

Thesis delta

The Seeking Alpha upgrade provides external validation of our BUY thesis but introduces no material new information, as the cited deals and financials were already detailed in recent filings. It underscores RGLD's growth acceleration but doesn't mitigate the core risks around gold prices and project execution, leaving our stance unchanged.