Transcontinental Inc. (TSX:TCL.A), Canada’s largest printer and one of North America’s leading suppliers of flexible packaging, announced its fourth-quarter earnings results after the market closed on Thursday, and its stock has responded by falling over 1% in early trading today. Let’s break down the results and the fundamentals of its stock to determine if we should consider using this weakness as a long-term buying opportunity.
A lacklustre quarterly performance
Here’s a quick breakdown of eight of the most notable financial statistics from Transcontinental’s three-month period ended October 29, 2017, compared with its three-month period ended October 31, 2016:
|Metric||Q4 2017||Q4 2016||Change|
|Printing & Packaging Sector revenue||$479.3 million||$484.6 million||(1.1%)|
|Media Sector revenue||$54.1 million||$82.1 million||(34.1%)|
|Total revenue||$527.2 million||$555.6 million||(5.1%)|
|Adjusted operating earnings||$98.4 million||$107.4 million||(8.4%)|
|Adjusted operating margin||18.7%||19.3%||(60 basis points)|
|Adjusted net earnings||$68.3 million||$76.6 million||(10.8%)|
|Adjusted net earnings per share (EPS)||$0.88||$0.99||(11.1%)|
|Cash flows from operating activities||$111.4 million||$60.8 million||83.2%|
Should you buy on the dip?
It was a disappointing quarter for Transcontinental, and it finished off a weak year for the company, in which its revenue decreased 0.6% to $2.01 billion, and its adjusted EPS increased just 3.2% to $2.61 when compared with fiscal 2016. With these results in mind, I think the weakness in its stock is warranted, but I think it represents an intriguing long-term investment opportunity for two fundamental reasons.
First, it trades at very low valuations. Transcontinental’s stock now trades at just 9.8 times fiscal 2017’s adjusted EPS of $2.61 and only 9.7 times fiscal 2018’s estimated EPS of $2.63, both of which are inexpensive given its strong cash flow-generating ability and its position as a leader in the majority of the markets it serves.
Second, it’s a dividend aristocrat. Transcontinental currently pays a quarterly dividend of $0.20 per share, representing $0.80 per share annually, which gives it a juicy 3.1% yield today. It’s also very important to note that 2017 marked the 16th consecutive year in which it has raised its annual dividend payment, and its 8.1% hike in March has it positioned for fiscal 2018 to mark the 17th consecutive year with an increase.
Transcontinental’s stock has returned over 78% when including reinvested dividends since I first recommended it on December 17, 2014, and I think it still represents an attractive long-term investment opportunity today, so take a closer look and consider beginning to scale in to a position.
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Fool contributor Joseph Solitro has no position in any stocks mentioned.