The Jean Coutu Group Inc. (TSX:PJC.A), one of the largest operators of pharmacies in Canada, announced first-quarter earnings results on the morning of July 7, and its stock has responded by falling over 6%, reaching new 52-week lows in the process. Let’s take a closer look at the quarterly results to determine if this weakness represents a long-term buying opportunity, or if we should wait for an even better entry point in the trading sessions ahead.
The results that ignited the sell-off
Here’s a summary of Jean Coutu’s first-quarter earnings results compared with its results in the same period a year ago.
| Metric | Q1 2016 | Q1 2015 |
| Earnings Per Share | $0.27 | $0.29 |
| Revenue | $712.4 million | $688.6 million |
Source: The Jean Coutu Group Inc.
Jean Coutu’s earnings per share decreased 6.9% and its revenue increased 3.5% compared with the first quarter of fiscal 2015. Its slight decline in earnings per share can be attributed to its net income decreasing 6.5% to $50.6 million; this is mainly due to a tax provision of $4.7 million.
The company noted that its slight increase in revenue could be attributed to “overall market growth and the expansion of the PJC network of franchised stores,” but this growth was partially offset the negative impact of sales volume of generic drugs outpacing that of brand name drugs as well as price reductions of generic drugs.
Here’s a quick breakdown of six other notable statistics from the report compared with the year-ago period:
- Same-store sales increased 3.8%
- Same-store pharmacy sales increased 4.2%
- Same-store prescription sales increased 2.8%
- Same-store front-end sales increased 2.7%
- Generic drugs represented 69.1% of total prescription sales, compared with 67.8% in the year-ago period
- Operating income before amortization increased 1.2% to $83 million
Jean Coutu also announced that it will be maintaining its quarterly dividend of $0.11 per share, and the next payment will come on August 7 to shareholders of record at the close of business on July 24.
Should you buy on the dip?
The first quarter was far from impressive for Jean Coutu, so I think the weakness in its stock is warranted. However, I also think it represents an attractive long-term buying opportunity. The stock now trades at very inexpensive valuations, and the company has shown a dedication to maximizing shareholder value through the payment of dividends.
First, Jean Coutu’s stock now trades at just 17.4 times fiscal 2016’s estimated earnings per share of $1.21 and only 16.4 times fiscal 2017’s estimated earnings per share of $1.28, both of which are inexpensive compared with the industry average price-to-earnings multiple of 25.2.
Second, Jean Coutu pays an annual dividend of $0.44 per share, giving its stock a 2.1% yield at current levels. A 2.1% yield may not seem impressive at first, but it is very important to note that the company has increased its annual dividend payment for seven consecutive years, and its consistent free cash flow generation and low payout ratio could allow this streak to continue for the next several years.
With all of the information provided above in mind, I think Jean Coutu represents one of the best long-term investment opportunities in the market today. Foolish investors should strongly consider using the post-earnings weakness to begin scaling in to positions.
