Corus Entertainment Inc. (TSX:CJR.B), one of the world’s leading media and content companies, announced its fiscal 2018 first-quarter earnings results this morning, and its stock has responded by plummeting over 9% in early trading. Let’s break down the results and the fundamentals of its stock to determine if this sell-off represents a long-term buying opportunity or a warning sign to avoid it for the time being.
The results that ignited the sell-off
Here’s a quick breakdown of eight of the most notable statistics from Corus’s three-month period ended November 31, 2017, compared with the same period in 2016:
|Metric||Q1 2018||Q1 2017||Change|
|Television revenues||$415.46 million||$425.56 million||(2.4%)|
|Radio revenues||$41.92 million||$42.42 million||(1.2%)|
|Total revenues||$457.39 million||$467.98 million||(2.3%)|
|Total segment profit||$177.89 million||$191.99 million||(7.3%)|
|Adjusted net income attributable to shareholders||$78.89 million||$80.83 million||(2.4%)|
|Adjusted basic earnings per share (EPS)||$0.38||$0.41||(7.3%)|
|Cash provided by operating activities||$85.68 million||$22.35 million||283.4%|
|Free cash flow||$83.22 million||$33.91 million||145.4%|
What should you do now?
It was a disappointing quarter overall for Corus, which it attributed to a weak television advertising market, so I think the sell-off in its stock is warranted; however, I also think it represents an attractive buying opportunity for long-term investors for two reasons in particular.
First, it’s undervalued. Corus’s stock now trades at a mere 9.2 times this year’s estimated EPS of $1.09, which is very inexpensive when compared with its five-year average multiple of 14.5; these multiples are also inexpensive given the strength and stability of its cash flow.
Second, it has a fantastic dividend. Corus pays a monthly dividend of $0.095 per share, representing $1.14 per share annually, which gives it a massive 11.4% yield. A double-digit yield may make you question its stability, but the entertainment giant generated free cash flow of $83.22 million and paid out dividends of just $61.06 million during the quarter, resulting in a sound 73.4% payout ratio, which makes me believe that it is safe, and my fellow writer Joey Frenette agrees.
With all of the information provided above in mind, I think Foolish investors should consider beginning to scale in to long-term positions in Corus Entertainment today.
Fool contributor Joseph Solitro has no position in any stocks mentioned.