3 Reasons to Buy Shaw Communications Inc. Today

Shaw Communications Inc. (TSX:SJR.B)(NYSE:SJR) could be one of the market’s top performing stocks going forward. Is now the time for you to initiate a position?

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Shaw Communications Inc. (TSX:SJR.B)(NYSE:SJR), one of the largest telecommunications and media companies in Canada, has been one of the market’s most disappointing stocks in 2015, falling more than 17%, but I think it could pare these losses and head significantly higher going forward. Let’s take a look at three of the primary reasons why I think this will happen and why you should make it a core holding in your portfolio today.

1. Its strong fourth-quarter earnings results could support a quick rebound

On the morning of October 22, Shaw released very strong fourth-quarter earnings results, and I think they could help kick-start a rally within the next few weeks. Here’s a summary of eight of the most notable statistics from the report compared with the year-ago period:

  1. Net income increased 43.8% to $276 million
  2. Earnings per share increased 42.5% to $0.57
  3. Total revenues increased 6.3% to $1.34 billion
  4. Revenue increased 0.2% to $938 million in its consumer segment
  5. Revenue increased 0.4% to $232 million in its media segment
  6. Revenue increased 7.3% to $133 million in its business network services segment
  7. Operating income before restructuring costs and amortization increased 9.1% to $573 million
  8. Operating margin expanded 110 basis points to 42.7%

2. Its stock is trading at inexpensive valuations

At today’s levels, Shaw’s stock trades at just 14.3 times fiscal 2015’s earnings per share of $1.80 and only 13.9 times fiscal 2016’s estimated earnings per share of $1.86, both of which are inexpensive compared with its five-year average price-to-earnings multiple of 15.9, its trailing 12-month multiple of 14.4, and the industry average multiple of 20.7.

I think Shaw’s stock could consistently command a fair multiple of at least 18, which would place its shares upwards of $33 by the conclusion of fiscal 2016, representing upside of about 28% from current levels. This projection is also very reasonable when you consider that it is just 3.3% above its current 52-week high of $31.93, which it reached back on December 29, 2014.

3. It has a high dividend and is a dividend-growth play

Shaw pays a monthly dividend of $0.09875, or $1.185 per share annually, which gives its stock a 4.6% yield, and this is significantly higher than the industry average yield of 3.1%. The company has also increased its dividend for 12 consecutive years, making it both a high dividend and a dividend-growth play.

Its ample free cash flow generation, including $698 million in fiscal 2014 and $653 million in fiscal 2015, should allow this streak to continue for the next several years.

Is there a place for Shaw in your portfolio?

I think Shaw Communications could pare its year-to-date losses and be one of the market’s top returners over the next several years, because its strong earnings results in fiscal 2015 could support a quick rebound, because its stock is trading at very inexpensive valuations, and because it is both a high dividend and a dividend-growth play. All Foolish investors should take a closer look and strongly consider making it a core holding.

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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