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Why Corus Entertainment Inc. Fell 2.4% on Wednesday

Corus Entertainment Inc. (TSX:CJR.B), one of the world’s leading media and content companies, announced its fourth-quarter earnings results on Wednesday morning, and its stock responded by falling 2.4% in the day’s trading session. The stock now sits more than 11% below its 52-week high of $14.10 reached back on August 9, so let’s break down the quarterly results and the fundamentals of its stock to determine if now is the time to buy.

Breaking down the Q4 performance

Here’s a quick breakdown of eight of the most notable statistics from Corus’s three-month period ended August 31, 2017, compared with the same period in 2016:

Metric Q4 2017 Q4 2016 Change
Television revenues $346.01 million $347.28 million (0.4%)
Radio revenues $35.20 million $37.18 million (5.3%)
Total revenues $381.21 million $384.47 million (0.8%)
Total adjusted segment profit $107.25 million $106.82 million 0.4%
Adjusted net income attributable to shareholders $43.94 million $14.54 million 202.3%
Adjusted basic earnings per share (EPS) $0.22 $0.07 214.3%
Cash provided by operating activities $89.11 million $73.01 million 22.1%
Free cash flow $80.20 million $61.40 million 30.6%

Should you buy Corus on the dip?

It was a decent quarter overall for Corus, but it capped off a very strong full-year performance for the company in fiscal 2017, in which its revenue increased 50.6% to $1.53 billion, its adjusted net income increased 70.9% to $220.49 million, and its free cash flow increased 55.5% to $292.66 million compared with fiscal 2016. However, the fourth-quarter results came in mixed compared with analysts’ expectations, which called for adjusted EPS of $0.16 on revenue of $389.7 million, so I think the 2.4% drop in its stock was warranted.

With all of this being said, I think the drop in Corus’s stock represents an attractive entry point for long-term investors for two fundamental reasons.

First, it’s undervalued. Corus’s stock trades at just 11.3 times fiscal 2017’s adjusted basic EPS of $1.10 and only 11 times the consensus estimate of $1.13 for fiscal 2018, both of which are very inexpensive compared with its five-year average price-to-earnings multiple of 14.6; these multiples are also inexpensive given its long-term growth potential.

Second, it has a fantastic dividend. Corus pays a monthly dividend of $0.095 per share, equating to $1.14 per share on an annualized basis, giving it a massive 9.2% yield; this yield is also safe when you consider that the company’s free cash flow totaled $292.66 million and its dividend payments totaled just $141.09 million in fiscal 2017, resulting in a sound 48.2% payout ratio.

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

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Fool contributor Joseph Solitro has no position in the companies mentioned.

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