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Is SNC-Lavalin Group Inc. the Top TSX 60 Index Component to Buy Today?

SNC-Lavalin Group Inc. (TSX:SNC), one of the largest engineering and construction companies in the world, has been one of the market’s most disappointing stocks. It has fallen over 5.5%, while the TSX Composite Index has gained over 4.5%, but it has the potential to be one of the top performers over the next several years. Let’s take a look at three of the top reasons why you should consider buying shares today.

1. Acquisitions driving revenues higher

SNC released very strong fourth-quarter earnings results on March 5, citing its “landmark” $1.97 billion acquisition of Kentz Corp. as a primary driver of growth, and its stock has responded by rising over 12.5% in the weeks since. Here’s a breakdown of 10 of the most notable statistics from the report compared to the year-ago period:

  1. Adjusted net income increased 0.6% to $106.67 million
  2. Adjusted earnings per share remained unchanged at $0.70
  3. Total revenues increased 32.7% to $2.82 billion
  4. Revenue from services increased 47.8% to $1.03 billion
  5. Revenue from packages increased 49.3% to $1.24 billion
  6. Revenue from operations and maintenance increased 1.3% to $342.6 million
  7. Revenue from infrastructure concession investments decreased 21.6% to $200.7 million
  8. Net cash generated from operating activities increased 24.7% to $435.53 million
  9. Ended the quarter with a backlog of approximately $12.3 billion, an increase of 48.7% from the backlog reported at the end of the year-ago period
  10. Ended the quarter with $1.7 billion in cash and cash equivalents, an increase of 47.4% from the beginning of the quarter

2. Inexpensive current and forward valuations

At current levels, SNC’s stock trades at just 16.9 times fiscal 2014’s adjusted earnings per share of $2.46 and a mere 12.9 times fiscal 2015’s estimated earnings per share of $3.24, both of which are very inexpensive compared to its five-year average price-to-earnings multiple of 43.

I think SNC’s stock could consistently command a fair multiple of at least 18, which would place its shares upwards of $58 by the conclusion of fiscal 2015, representing upside of more than 39% from today’s levels.

3. A stable and growing dividend

SNC pays a quarterly dividend of $0.25 per share, or $1.00 per share annually, giving its stock a 2.4% yield at current levels. A 2.4% yield may not seem impressive at first, but you must factor in that the company has raised its annual payment for 15 consecutive years, and I think this streak could continue on for the next several years, making it one of the top dividend-growth plays in the market today. 

Is now the time to buy shares of SNC-Lavalin Group?

SNC-Lavalin Group Inc.’s stock represents one of the best long-term investment opportunities in the market today because its earnings and revenues are on the rise, because its stock trades at inexpensive current and forward valuations, and because it has a stable and growing dividend. Long-term investors should take a closer look and strongly consider establishing positions.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

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

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