Roth repeated a Buy on China operating miner Silvercorp Metals Inc (NSYEAMERICAN:SVM) (TSX:SVM) and upped its price target on the stock following second-quarter results, which were "better than expected" across the board.
The miner also has a strong balance sheet, which it could use to acquire an underfunded development stage asset, analyst Joe Reagor notes.
"We note that in most cases in the mining industry, acquisitions tend to result in value destruction for the acquiring company, but we believe SVM is in a unique position to target undervalued assets that have the potential to be smaller scale cash generating mines," he said.
READ: Silvercorp Metals, the China-focused miner, reports 52% increase in net income in second quarter
Silvercorp currently produces metals from its flagship Ying district project in the Henan Province - which has six underground mines with four mining permits - and also the GC mine in the Guangdong province, where output began five years ago.
"Metal sales of 1.9 million ounces of silver, 1.7 million pounds of zinc, 19.1 million pounds of lead, and 1,100 ounces of gold were all above our estimates," said Reagor, which he attributed to a strong performance in the quarter across all metrics, including throughput, grade, and recoveries.
"The strong production in the quarter also drove revenue and EPS beats. As a result of the strong performance of the company's assets in the first two quarters of fiscal 2020, management disclosed it expects to finish the year above initial guidance," he added.
Revenue came in at US$49.9 million, up 4% on the US$48 million seen last year, while net income attributable to shareholders was US$12.2 million, up 52% compared to US$8 million in the prior-year quarter.
Roth's price target moves to US$5.50 a share, from US$5.25 a share previously, while the rating is a reiterated Buy.
"... we believe the company remains somewhat undervalued and that there is significant potential for them to acquire and build another asset."
Silvercorp shares gained 5.5% to US$4.43 in New York.
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