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3 Reasons Why Fortis Inc. Is a Steal at Under $38

Fortis Inc. (TSX:FTS), one of North America’s largest electric and gas utilities companies, has posted a disappointing performance thus far in 2015. It has fallen a little over 3%, but I think it could pare these losses and head significantly higher over the next several years. Let’s take a look at three of the primary reasons why I think this will happen and why you should buy the stock today.

1. Its strong earnings results could support a quick rebound

On the morning of November 6, Fortis released very strong earnings results for its three- and nine-month periods ending on September 30, 2015, but its stock has responded by making a slight move lower in the trading sessions since. Here’s a summary of six of the most notable statistics from the first nine months of fiscal 2015 compared with the same period in fiscal 2014:

  1. Adjusted net earnings increased 60.2% to $447 million
  2. Adjusted earnings per share increased 23.8% to $1.61
  3. Total revenue increased 35.4% to $5.02 billion
  4. Operating income increased 47.3% to $1.08 billion
  5. Cash flow from operating activities increased 96.9% to $1.28 billion
  6. Total assets increased 7.1% to $28.64 billion

The very strong results above can be largely attributed to the company’s acquisition of UNS Energy, which was completed in August 2014 and contributed $1.55 billion of revenue and $169 million of earnings in the first nine months of fiscal 2015.

2. Its stock trades at inexpensive forward valuations

At today’s levels, Fortis’s stock trades at just 18.5 times fiscal 2015’s estimated earnings per share of $2.04 and only 17.4 times fiscal 2016’s estimated earnings per share of $2.17, both of which are inexpensive compared with its five-year average price-to-earnings multiple of 20.7.

I think the company’s stock could consistently command a fair multiple of at least 20, which would place its shares upwards of $43 by the conclusion of fiscal 2016, representing upside of more than 13% from current levels.

3. It is home to one of the market’s best dividends

Fortis pays a quarterly dividend of $0.375 per share, or $1.50 per share annually, giving its stock a 4% yield. It is also very important for investors to note that the company has raised its dividend for 42 consecutive years, the record for a public corporation in Canada, and it has a targeted annual dividend-growth rate of 6% through 2020, making it the market’s top dividend-growth play. 

Is there a place for Fortis in your portfolio?

Fortis represents one of the best long-term investment opportunities in the market, so all Foolish investors should strongly consider making it a core holding today.

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Fool contributor Joseph Solitro has no position in any stocks mentioned.

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