Why Maple Leaf Foods Inc. Rallied 2.65% on Thursday

Maple Leaf Foods Inc. (TSX:MFI) rose 2.65% on Thursday following its Q3 earnings release. What should you do now? Let’s find out.

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Maple Leaf Foods Inc. (TSX:MFI), Canada’s largest consumer packaged meats company, released its third-quarter earnings results before the market opened on Thursday, and its stock responded by rising 2.65% in the day’s trading session. Let’s break down the quarterly results and the fundamentals of its stock to determine if this could be the start of a sustained rally higher and if we should be long-term buyers today.

The results that sent the stock higher

Here’s a quick breakdown of six of the most notable financial statistics from Maple Leaf’s three-month period ended on September 30, 2017, compared with the same period in 2016:

Metric Q3 2017 Q3 2016 Change
Sales $908.36 million $852.10 million 6.6%
Adjusted EBITDA $96.41 million $87.75 million 9.9%
Adjusted EBITDA margin 10.6% 10.3% 30 basis points
Adjusted operating earnings $65.15 million $61.52 million 5.9%
Adjusted earnings per share (EPS) $0.39 $0.32 21.9%
Free cash flow $154.29 million $146.68 million 5.2%

What should you do with Maple Leaf’s stock now?

It was an outstanding quarter overall for Maple Leaf, and it has been on a tear so far in 2017, with its sales up 5.7% to $2.65 billion, its adjusted EBITDA up 11.9% to $287.58 million, and its adjusted EPS up 22.8% to $1.13 in the first nine months of the year compared with the same period in 2016. That being said, I think the market responded correctly by sending Maple Leaf’s stock higher in Thursday’s trading session, and I think it still represents a great investment opportunity for the long term for two fundamental reasons.

First, it’s still undervalued. Maple Leaf’s stock is up over 18% year to date, but it still trades at just 22.2 times fiscal 2017’s estimated EPS of $1.50 and only 19.8 times fiscal 2018’s estimated EPS of $1.68, both of which are inexpensive compared with its five-year average multiple of 25.5; these multiples are also inexpensive given its current double-digit percentage earnings-growth rate.

Second, it’s a stealthy dividend-growth play. Maple Leaf currently pays a quarterly dividend of $0.11 per share, equal to $0.44 per share annually, which gives it a yield of about 1.3% today. A 1.3% yield is far from high, but investors must note that the company’s 22.2% dividend hike in February has it on track for 2017 to mark the third consecutive year in which it has raised its annual dividend payment, and I think its very strong operational performance will allow this streak to easily continue into the 2020s.

With all of the information provided above in mind, I think Foolish investors seeking exposure to the food industry should consider initiating long-term positions in Maple Leaf today with the intention of adding to those positions on any weakness in the trading sessions ahead.

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 the companies mentioned.

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