Should You Buy, Sell, or Hold Shaw Communications Inc. Following its Q2 Earnings Miss?

Shaw Communications Inc.’s (TSX:SJR.B)(NYSE:SJR) second-quarter earnings results fell short of expectations, and its stock reacted by falling over 3%. Should you buy on the dip?

| More on:
The Motley Fool

Shaw Communications Inc. (TSX:SJR.B)(NYSE:SJR), one of the largest telecommunications and media companies in Canada, announced second-quarter earnings before the market opened on April 14, and its stock has responded by falling over 3%. Let’s take a closer look at the results to determine if this weakness represents a long-term buying opportunity, or a major warning sign.

Breaking down the quarterly miss

Here’s a summary of Shaw’s second-quarter earnings results compared to what analysts had anticipated and its results in the same period a year ago.

Metric Reported Expected Year-Ago
Earnings Per Share $0.34 $0.39 $0.46
Revenue $1.34 billion $1.35 billion $1.27 billion

Source: Financial Times

Shaw’s earnings per share decreased 26.1% and its revenue increased 4.9% compared with the second quarter of fiscal 2014. The company’s double-digit decline in earnings per share can be attributed to net income decreasing 24.3% to $168 million.

Its solid revenue growth can be attributed to revenues increasing 8.4% to $129 million in its business network services segment, but this growth was partially offset by a 0.5% decline to $937 million in its consumer segment and a 0.4% decline to $238 million in its media segment.

Here’s a quick breakdown of eight other notable statistics from the report compared to the year-ago period:

  1. Total consumer subscribers decreased by 65,215 from the end of the first quarter to 5,500,209
  2. Total business network services subscribers decreased by 58,067 from the end of the first quarter to 6,065,798
  3. Operating income before restructuring costs and amortization increased 5.5% to $557 million
  4. Cash flow provided by operating activities increased 7.5% to $442 million
  5. Funds flow from operations increased 1.1% to $361 million
  6. Capital expenditures and equipment costs increased 9.6% to $229 million
  7. Free cash flow increased 7% to $169 million
  8. Ended the quarter with $136 million in cash, an increase of 466.7% from the beginning of the quarter

Should you buy Shaw Communications on the dip?

Even though I think the post-earnings drop in Shaw’s stock is warranted, I also think it has led to a long-term buying opportunity because it trades at inexpensive valuations and pays a very high dividend.

First, Shaw’s stock trades at just 15.3 times fiscal 2015’s estimated earnings per share of $1.82 and only 14.5 times fiscal 2016’s estimated earnings per share of $1.92, both of which are inexpensive compared to its five-year average price-to-earnings multiple of 15.5.

Second, Shaw pays a monthly dividend of $0.09875 per share, or $1.185 per share annually, giving its stock a bountiful 4.25% yield at today’s levels. The company has also increased its annual dividend payment for 12 consecutive years, making it one of the top dividend-growth plays in the market today.

With all of the information provided above in mind, I think the post-earnings weakness in Shaw Communication’s stock represents a very attractive long-term buying opportunity. Foolish investors should take a closer look and strongly consider beginning to scale in to long-term positions today.

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.

More on Dividend Stocks

financial freedom sign
Dividend Stocks

Generate Enough Passive Income to Retire

Looking to generate a stream of passive income to retire on? Here are several stocks to start building out your…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

3 Stocks to Hold for a Reliable Source of Passive Income

Are you looking for a way to produce a reliable source of passive income? Hold these three stocks!

Read more »

worry concern
Dividend Stocks

3 Stocks to Buy if You Are Worried About a Recession

There are a lot of safe investments that can help your portfolio remain afloat during a recession and the market…

Read more »

Two colleagues working on new global financial strategy plan using tablet and laptop.
Dividend Stocks

2 Canadian Dividend Stocks I Just Bought During the Selloff 

There are plenty of high-quality investments to consider today, but these two Canadian dividend stocks are easily among the best.

Read more »

HIGH VOLTAGE ELECRICITY TOWERS
Dividend Stocks

Top 3 Utility Stocks for Stability and Consistent Income

These utility stocks could continue to return cash, irrespective of the volatility in the market.

Read more »

edit Back view of hugging couple standing with real estate agent in front of house for sale
Dividend Stocks

Tradeoff: Lower Home Prices for Higher Debt Burden

Buyers welcome lower home prices but more rate hikes will increase their financial burdens.

Read more »

Dividend Stocks

1 Top REIT to Buy Amid Housing Price Cooldown

Consider investing in this Canadian REIT if you want to capitalize on the housing price cooldown right now.

Read more »

stock analysis
Dividend Stocks

TFSA Passive Income: 2 Oversold Dividend Stocks for Self-Directed Investors

These top TSX dividend stocks look cheap right now.

Read more »