Transcontinental Inc. (TSX:TCL.A), Canada’s largest printer, released its third-quarter earnings results this morning, and its stock responded by rising over 3% in early trading. Let’s break down the quarterly results and the fundamentals of its stock to determine if we should be long-term buyers today or wait for a better entry point in the trading sessions ahead.
The results that ignited the rally
Here’s a quick breakdown of eight of the most notable financial statistics from Transcontinental’s three-month period ended on July 30, 2017, compared with its three-month period ended on July 31, 2016:
| Metric | Q3 2017 | Q3 2016 | Change |
| Printing and packaging products revenue | $370.4 million | $342.8 million | 8.1% |
| Publishing and content products revenue | $70.0 million | $85.1 million | (7.2%) |
| Other product and services revenue | $37.3 million | $39.9 million | (6.5%) |
| Total revenue | $477.7 million | $467.8 million | 2.1% |
| Adjusted operating earnings | $69.9 million | $62.7 million | 11.5% |
| Adjusted operating margin | 14.6% | 13.4% | 120 basis points |
| Adjusted net earnings | $50.1 million | $44.1 million | 13.6% |
| Adjusted net earnings per share (EPS) | $0.65 | $0.57 | 14.0% |
What should you do now?
It was a great quarter overall for Transcontinental, and the results surpassed the consensus estimates of analysts polled by Thomson Reuters, which called for adjusted EPS of $0.56 on revenue of $461.08 million. The company also performed very well in the first nine months of fiscal 2017, with its revenue up 1.1% to $1.48 billion, its adjusted net earnings up 11.9% to $133.9 million, and its adjusted EPS up 12.3% to $1.73.
With all of this being said, I think the market has responded correctly by sending its stock higher, and I think it still represents a great long-term investment opportunity for two fundamental reasons.
First, it’s still wildly undervalued. Even after the +3% pop, Transcontinental’s stock still trades at just 10.1 times fiscal 2017’s estimated EPS of $2.52, which I think is much too low. I think it could easily command a multiple of 12-15 times earnings, which would place its shares upwards of $30 by the end of the year.
Second, it has a fantastic dividend. Transcontinental currently pays a quarterly dividend of $0.20 per share, equal to $0.80 per share annually, which gives it a generous 3.15% yield. Investors must also note that the company’s recent dividend hikes, including its 8.1% hike in March, have in on track for 2017 to mark the 16th consecutive year in which it has raised its annual dividend payment, making it both a high-yield and dividend-growth play today.
With all of the information provided above in mind, I think Foolish investors should consider initiating long-term positions in Transcontinental today with the intention of adding to those positions on any significant pullback in the future.
