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.
|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:
- Total consumer subscribers decreased by 65,215 from the end of the first quarter to 5,500,209
- Total business network services subscribers decreased by 58,067 from the end of the first quarter to 6,065,798
- Operating income before restructuring costs and amortization increased 5.5% to $557 million
- Cash flow provided by operating activities increased 7.5% to $442 million
- Funds flow from operations increased 1.1% to $361 million
- Capital expenditures and equipment costs increased 9.6% to $229 million
- Free cash flow increased 7% to $169 million
- 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.