WestJet Airlines Ltd. (TSX:WJA), one of North America’s largest airliners, released record first-quarter earnings results on the morning of May 5 and its stock has reacted by making a slight move to the upside. Let’s take a closer look at the results to determine if you should consider initiating a long-term position today, or if you should wait for a better entry point in the trading sessions ahead.
The record quarterly performance
Here’s a summary of WestJet’s first-quarter earnings results compared with what analysts had anticipated and its results in the same period a year ago.
|Earnings Per Share||$1.09||$0.99||$0.69|
|Revenue||$1.08 billion||$1.07 billion||$1.04 billion|
Source: Financial Times
WestJet’s diluted earnings per share increased 58% and its revenue increased 4% compared with the first quarter of fiscal 2014. The company’s very strong earnings-per-share growth can be attributed to its net income increasing 57.6% to $140.7 million, helped by its total operating expenses decreasing 2.7% to $886.34 million, including its aircraft fuel expenses decreasing 26.1% to just $210.45 million. Its solid revenue growth can be attributed to its total guests increasing 2.2% to 4.91 million, which led to its total revenue from guests increasing 2.1% to $956.95 million.
WestJet also proudly noted that this marked the most profitable quarter in its history and its 40th consecutive profitable quarter.
Here’s a breakdown of 12 other notable statistics from the report compared with the year-ago period:
- Operating profit increased 49.8% to $197.16 million
- Operating margin expanded 560 basis points to 18.2%
- Earnings before income taxes increased 56.7% to $192.45 million
- Net cash provided by operating activities increased 311.9% to $256.58 million
- Available seat miles (ASMs) increased 4.7% to 6.82 billion
- Revenue passenger miles (RPMs) increased 2.8% to 5.57 billion
- Cost per available seat mile (CASM) decreased 7% to 13 cents
- Yield (revenue per revenue passenger mile) increased 1.2% to 19.47 cents
- Revenue per available seat mile (RASM) decreased 0.7% to 15.89 cents
- Return on invested capital improved 150 basis points to an all-time high of 15.8%
- On-time performance improved 1,010 basis points to 78%
- Ended the quarter with $1.41 billion in cash and cash equivalents, an increase of 3.5% from the beginning of the quarter
Also, on May 4 WestJet announced that it will be maintaining its quarterly dividend of $0.14 per share, and the next payment will come on June 30 to shareholders of record at the close of business on June 17.
Should you buy shares of WestJet Airlines today?
I think WestJet Airlines represents one of the best long-term investment opportunities in the market today because it trades at very inexpensive valuations and because it has shown a strong dedication to maximizing shareholder value through the payment of dividends and the repurchasing of its shares.
First, WestJet’s stock trade at a mere 8.3 times fiscal 2015’s estimated earnings per share of $3.41, which is very inexpensive compared with its five-year average price-to-earnings multiple of 13.8. I think WestJet’s stock could consistently command a fair multiple of at least 12, which would place its shares upwards of $40 by the conclusion of fiscal 2015, representing upside of more than 40% from current levels.
Second, WestJet pays an annual dividend of $0.56 per share, giving its stock a yield of approximately 2% at today’s levels, and it has increased its dividend five times in the last three years, making it one of the top dividend-growth plays in the industry today. Also, the company has been actively repurchasing its shares, including $112.36 million in repurchases in fiscal 2014 and $44.31 million in repurchases in the first quarter of fiscal 2015, and this activity will help boost earnings per share going forward.
Foolish investors should take a closer look and strongly consider making it a core holding.
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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.