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.
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 any stocks mentioned.