Exco Technologies Limited (TSX:XTC), one of the world’s leading suppliers of innovative technologies to the die-cast, extrusion, and automotive industries, watched its stock rally 3.32% on Thursday following the release of its fiscal 2018 first-quarter earnings results Wednesday afternoon. Let’s break down the results and the fundamentals of its stock to determine if this could be the start of a sustained rally back towards its 52-week high of $12.79, which it still sits more than 22% below.
Breaking down the first-quarter performance
Here’s a quick breakdown of eight of the most notable statistics from Exco’s three-month period ended December 31, 2017, compared with the same period in 2016:
|Metric||Q1 2018||Q1 2017||Change|
|Automotive Solutions sales||$88.3 million||$108.2 million||(18.4%)|
|Casting and Extrusion sales||$46.6 million||$44.9 million||3.8%|
|Consolidated sales||$134.9 million||$153.1 million||(11.9%)|
|Net income||$8.9 million||$11.5 million||(22.6%)|
|Adjusted net income per share (EPS)||$0.21||$0.30||(30%)|
|EBITDA||$17.3 million||$23.3 million||(25.8%)|
|EBITDA margin||12.8%||15.2%||(240 basis points)|
|Operating cash flow before changes in non-cash working capital||$15.1 million||$18.0 million||(16.1%)|
A very important announcement
In the press release, Exco also announced a 6.3% increase to its quarterly dividend to $0.085 per share, and the first payment at this increased rate will come on March 29 to shareholders of record at the close of business on March 15. The company proudly noted that this is the ninth time it has raised its dividend in the last eight years and that its dividend has risen over 300% in that period.
What should you do with Exco’s stock right now?
It was a disappointing quarter overall for Exco, and the dividend increase did not make up for the weak results, in my opinion, so I am confused as to why the market reacted by sending it higher by more than 3%. Results aside, I think the stock represents an attractive long-term investment opportunity for two fundamental reasons.
First, it’s incredibly inexpensive. Even after the 3.3% pop, Exco’s stock trades at just 9.8 times fiscal 2018’s estimated EPS of $1.02 and only 8.7 times fiscal 2019’s estimated EPS of $1.14, both of which represent major discounts to its five-year average multiple of 13.
Second, it’s an under-the-radar dividend star. Exco now pays an annual dividend of $0.34 per share, which gives its stock a juicy 3.4% yield. On top of being a high yielder, the company has raised its dividend for eight straight years, and its two hikes in the last 13 months, including its 14.3% hike in February 2017 and the 6.3% hike it just announced, have it on track for fiscal 2018 to mark the ninth consecutive year with an increase, making it one of the best dividend stocks in the auto industry today.
Including reinvested dividends, Exco’s stock is up more than 5% since I recommended it following its earnings-induced 6.64% sell-off in December, and I think it’s still a strong buy today, despite its weak first-quarter performance, so take a closer look and consider beginning to scale in to a long-term position.