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Why Corus Entertainment Inc. Is Plummeting Over 9%

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.

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Fool contributor Joseph Solitro has no position in any stocks mentioned.

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