Why Inter Pipeline Ltd. Is Down Over 2%

Inter Pipeline Ltd. (TSX:IPL) is down over 2% following its Q2 earnings release. Should you buy on the dip? Let’s find out.

pipeline

Inter Pipeline Ltd. (TSX:IPL), one of the largest owners and operators of energy infrastructure assets in western Canada and Europe, released its second-quarter earnings results after the market closed on Thursday, and its stock has responded by falling over 2% in early trading. The stock now sits more than 22% below its 52-week high of $30.07 reached back in January, so let’s take a closer look at the results and the fundamentals of its stock to determine if we should consider initiating positions today.

Breaking down Inter Pipeline’s Q2 performance

Here’s a breakdown of 10 of the most notable statistics from Inter Pipeline’s three-month period ended on June 30, 2017, compared with the same period in 2016:

Metric Q2 2017 Q2 2016 Change
Revenue $516.0 million $413.0 million 24.9%
Funds from operations (FFO) $207.0 million $196.7 million 5.2%
FFO per share $0.56 $0.58 (3.4%)
Adjusted EBITDA $244.8 million $242.2 million 1.1%
Cash provided by operating activities $232.2 million $213.0 million 9%
Net earnings $102.3 million $122.9 million (16.8%)
Net earnings per share (EPS) $0.27 $0.34 (20.6%)
Average pipeline throughput volumes (barrels per day) 1,326,600 1,213,900 9.3%
Average natural gas liquids processing (barrels per day) 96,100 94,100 2.1%
Bulk liquid storage capacity utilization 98% 97% 100 basis points

Should you buy Inter Pipeline today?

It was a decent quarter overall for Inter Pipeline, but the results came in mixed compared with the consensus estimates of analysts polled by Thomson Reuters, which called for EPS of $0.34 on revenue of $487.55 million, so I think this is the primary reason the stock is down over 2%. However, it’s important to note that the company performed very well in the first half of 2017, with its revenue up 32% to $1.09 billion, its adjusted EBITDA up 13.5% to $534.4 million, its FFO up 18.6% to $453.9 million, and its net income up 6.5% to $242.3 million.

With all of this being said, I think Inter Pipeline represents a very attractive long-term investment opportunity today for two primary reasons.

First, it’s extremely undervalued. Inter Pipeline’s stock now trades at just 15.9 times fiscal 2017’s estimated EPS of $1.47 and only 15.1 times fiscal 2018’s estimated EPS of $1.54, both of which are very inexpensive compared with its five-year average price-to-earnings multiple of 23.4. These multiples are also inexpensive given its estimated 5.1% long-term earnings-growth rate.

Second, it has a fantastic dividend. Inter Pipeline pays a monthly dividend of $0.135 per share, equal to $1.62 per share annually, which gives its stock a yield of about 6.95% at the time of the writing. The company has also raised its annual dividend payment for eight consecutive years, and its 3.8% hike in November 2016 has it on track for 2017 to mark the ninth consecutive year with an increase, making it an income, high-yield, and dividend-growth play.

With all of the information provided above in mind, I think all Foolish investors should strongly consider using the post-earnings weakness in Inter Pipeline to begin scaling in to long-term positions.

Fool contributor Joseph Solitro has no position in any stocks mentioned.

More on Dividend Stocks

ETFs can contain investments such as stocks
Dividend Stocks

How to Use a TFSA to Generate $200 in Monthly Tax-Free Income

Use a TFSA to build $200 in monthly tax-free income with XEI and ZRE. See how these ETFs work and…

Read more »

Business success of growth metaverse finance and investment profit graph concept or development analysis progress chart on financial market achievement strategy background with increase hand diagram
Dividend Stocks

Smart Ways to Invest Extra Income and Say Goodbye to Financial Stress

Canadians have ways to make their extra income work as hard as they do and say goodbye to financial stress.

Read more »

Two seniors walk in the forest
Dividend Stocks

Sun Life Stock Pays 3.3%: How Much to Invest for $100 a Month in Dividends

Sun Life Financial (TSX:SLF) might be a massive bargain after Thursday's vicious plunge as stock markets sold off hard.

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

How to Turn Your TFSA Into $1,000 a Month in Tax-Free Income

Build toward $1,000 a month in tax-free income with a TFSA. See how Enbridge, Scotiabank and ZWC could help, and…

Read more »

customer fills up car with gasoline
Dividend Stocks

How Much Emergency Money Do Canadians Actually Need?

A safety fund equivalent to 3 to 6 months of living expenses is generally the baseline buffer that Canadians would…

Read more »

woman holding steering wheel is nervous about the future
Dividend Stocks

Still Up Double Digits This Year: Should You Still Invest in TSX Stocks After Thursday’s Dramatic Drop?

The TSX has gained about 136% over the past decade. So, stay invested, dollar‑cost average, and maintain diversification. 

Read more »

Real estate investment concept
Dividend Stocks

Intact Stock: Would I Buy It for Growth, Income, or Both?

Intact’s modest yield makes profitable long-term growth the main attraction, with catastrophe losses putting the next purchase to a test.

Read more »

hiker with backpack in the mountains
Dividend Stocks

2 Top Canadian Dividend Stocks for $1,850 in Annual Passive Income

With reliable cash flows, high dividend yields, and strong growth prospects, these two Canadian stocks suit income-seeking investors.

Read more »