Shaw Communications Inc.’s Q2 EPS Falls 5.9%: What Should You Do Now?

Shaw Communications Inc. (TSX:SJR.B)(NYSE:SJR) reported a decline in Q2 profit this morning, and its stock has responded by falling about 2%. Should you buy on the dip?

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Shaw Communications Inc. (TSX:SJR.B)(NYSE:SJR), one of the leading pure-play connectivity providers in Canada, announced its second-quarter earnings results this morning, and its stock has responded by falling nearly 2%. Let’s take a closer look at the results and the fundamentals of its stock to determine if this decline represents a long-term buying opportunity or a warning sign.

Breaking it all down

Here’s a summary of Shaw’s second-quarter earnings results compared with its results in the same period a year ago.

Metric Q2 2016 Q2 2015
Earnings Per Share From Continuing Operations $0.24 $0.28
Revenue $1.15 billion $1.12 billion

Source: Shaw Communications Inc.

Shaw’s earnings per share from continuing operations decreased 5.9% and its revenue increased 3% compared with the second quarter of fiscal 2015. The company’s slight decline in earnings per share can be attributed to its net income from continuing operations decreasing 14.1% to $116 million, primarily due to higher operating, general, and administrative expenses.

Its slight revenue growth can be attributed to its revenues increasing 6.2% to $137 million in its Business Network Services segment and 48.3% to $89 million in its Business Infrastructure Services segment, and this growth was only partially offset by its revenues decreasing 0.3% to $934 million in its Consumer segment.

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

  1. Operating income before restructuring costs and amortization increased 0.8% to $502 million
  2. Operating margin contracted 90 basis points to 43.6%
  3. Funds flow from operations increased 11.7% to $363 million
  4. Free cash flow decreased 29.6% to $119 million
  5. Total consumer and business network services subscribers decreased 3.5% to 5.85 million

Should you buy shares of Shaw on the dip?

The second quarter was far from impressive for Shaw, so I think the slight decline in its stock is warranted. However, I also think the decline represents a great long-term buying opportunity for two reasons.

First, Shaw completed its acquisition of WIND Mobile on March 1, making it the fourth-largest wireless provider in Canada, and it completed its sale of Shaw Media on April 1, making it a pure-play connectivity provider. The company stated that it believes these two “transformative transactions” position it for long-term growth, and I fully agree. The stock also trades at just 15.2 times fiscal 2016’s estimated earnings per share of $1.57, so it can be considered both a value and growth play.

Second, it has a great dividend. Shaw pays an annual dividend of $1.185 per share, which gives its stock a high and safe yield of about 5%. It is also very important to note that it has raised its annual dividend payment for 12 consecutive years, and its 7.7% hike in March 2015 has it on pace for fiscal 2016 to mark the 13th consecutive year with an increase.

With all of the information provided above in mind, I think Shaw Communications is a strong buy. All Foolish investors should 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.

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