Why Exco Technologies Limited Rallied 3.32% on Thursday

Exco Technologies Limited (TSX:XTC) rallied 3.32% on Thursday following its Q1 2018 earnings release. What should you do now?

| More on:

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.

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.

More on Dividend Stocks

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »

sale discount best price
Dividend Stocks

1 Dividend Stock Down 11 Percent to Buy Right Now

Do you want a great dividend stock down 11% that can provide years of growth potential? Here's one heavily discounted…

Read more »

Growth from coins
Dividend Stocks

1 Grade A Dividend Stock Down 11% to Buy and Hold Forever 

If you're looking for the right dividend stock at the right price, you're going to want to consider this insurance…

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Are you looking for dividend stocks to buy right now? Here are two top picks!

Read more »

edit Taxes CRA
Dividend Stocks

Tax Time: How to Keep More of Your Money

Nearly everyone hates paying taxes, although Canadians can lessen the financial pain with the right tax strategies.

Read more »