Inter Pipeline Ltd. (TSX:IPL), one of the largest owners and operators of energy infrastructure assets in western Canada and Europe, announced its first-quarter earnings results after the market closed on May 9, and its stock has responded by making a slight move to the upside. Let’s break down the results and the fundamentals of its stock to determine if we should be long-term buyers today. A quarter of mixed growth Here’s a summary of Inter Pipeline’s first-quarter earnings results compared with its results in the same period a year ago. Metric Q1 2016 Q1 2015 Earnings Per Share $0.28 $0.34…
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Inter Pipeline Ltd. (TSX:IPL), one of the largest owners and operators of energy infrastructure assets in western Canada and Europe, announced its first-quarter earnings results after the market closed on May 9, and its stock has responded by making a slight move to the upside. Let’s break down the results and the fundamentals of its stock to determine if we should be long-term buyers today.
A quarter of mixed growth
Here’s a summary of Inter Pipeline’s first-quarter earnings results compared with its results in the same period a year ago.
|Metric||Q1 2016||Q1 2015|
|Earnings Per Share||$0.28||$0.34|
|Total Revenue||$416.4 million||$405.8 million|
Source: Inter Pipeline Ltd.
Inter Pipeline’s earnings per share decreased 17.6% and its revenue increased 2.6% compared with the first quarter of fiscal 2015. Its steep decline in earnings per share can be attributed to its net income decreasing 14.8% to $104.6 million, and it noted that this was mainly due to its depreciation and amortization increasing 29.5% to $54.9 million and a $14.9 million one-time onerous contract adjustment.
Its strong revenue growth can be attributed to its revenues increasing in three of its four major segments, including 8% growth to $191.6 million in its Oil Sands Transportation segment, 4.8% growth to $81.5 million in its Conventional Oil Pipelines segment, and 36.8% growth to $65.8 million in its Bulk Liquid Storage segment.
Here’s a quick breakdown of eight other notable statistics from the report compared with the year-ago period:
- Average pipeline throughput volumes remained relatively unchanged at 1.31 million barrels per day
- Average natural gas liquids extraction volume decreased 6.4% to 105,800 barrels per day
- Bulk liquid storage capacity utilization improved 800 basis points to 98%
- Adjusted earnings before interest, taxes, depreciation, and amortization increased 6.9% to $238.8 million
- Cash provided by operating activities increased 10.5% to $175.3 million
- Funds from operations increased 5.4% to $186 million
- Funds from operations per share increased 3.8% to $0.55
- Dividends paid per share increased 6.1% to $0.39
Inter Pipeline also announced that it would be maintaining its dividend of $0.13 per share for the month of May, and it will be paid out on June 15 to shareholders of record at the close of business on May 24.
What should you do with Inter Pipeline today?
It was a solid quarter overall for Inter Pipeline, so I think its stock should continue to move higher over the course of today’s trading session. I also think the stock represents a great long-term investment opportunity for two reasons in particular.
First, it’s undervalued. Inter Pipeline’s stock trades at just 17.6 times fiscal 2016’s estimated earnings per share of $1.44 and only 17.2 times fiscal 2017’s estimated earnings per share of $1.47, both of which are inexpensive compared with its five-year average price-to-earnings multiple of 26.9 and the industry average multiple of 37.4. These multiples are also inexpensive given its estimated 9.9% long-term earnings growth rate.
Second, it has one of the best dividends in the energy sector. Inter Pipeline pays a monthly dividend of $0.13 per share, or $1.56 per share annually, which gives its stock a very high and very safe yield of about 6.15%. It is also very important to note that the company has raised its annual dividend payment for seven consecutive years, and its 6.1% hike in November 2015 has it on pace for 2016 to mark the eighth consecutive year with an increase.
With all of the information provided above in mind, I think Inter Pipeline should be on every Foolish investor’s buy list.
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Fool contributor Joseph Solitro has no position in any stocks mentioned.