Saputo Inc. (TSX:SAP), one of the world’s largest dairy processors, watched its stock tick lower by 2.55% on Thursday following the release of its fiscal 2018 third-quarter earnings results. Let’s break down the results and the fundamentals of its stock to determine if we should consider using this weakness as a long-term buying opportunity.
The results that failed to impress
Here’s a breakdown of seven of the most notable statistics from Saputo’s three-month period ended December 31, 2017, compared with the same period in 2016:
| Metric | Q3 2018 | Q3 2017 | Change |
| Revenues: Canada | $1,057.2 million | $1,059.0 million | (0.2%) |
| Revenues: U.S.A. | $1,591.3 million | $1,593.8 million | (0.2%) |
| Revenues: International | $373.3 million | $313.3 million | 19.2% |
| Total revenues | $3,021.8 million | $2,966.1 million | 1.9% |
| Adjusted EBITDA | $318.0 million | $346.6 million | (8.3%) |
| Adjusted net earnings | $183.2 million | $197.4 million | (7.2%) |
| Adjusted net earnings per share (EPS): diluted | $0.47 | $0.49 | (4.1%) |
Should you buy on the dip?
It was a fairly weak quarter overall for Saputo, so I think the weakness in its stock in Thursday’s trading session was warranted; however, the company posted solid results for its nine-month period ended December 31, 2017, with its revenues up 4.2% to $8.8 billion and its adjusted diluted EPS up 2.1% to $1.45 compared with the same period in 2016, so I think the downside in its stock will be limited.
With all of this being said, I think the weakness in Saputo’s stock represents an attractive entry point for long-term investors for two fundamental reasons.
First, it’s undervalued. Saputo’s stock now trades at just 20.9 times fiscal 2018’s estimated EPS of $1.97 and only 18.3 times fiscal 2019’s estimated EPS of $2.25, both of which are inexpensive compared with its five-year average price-to-earnings multiple of 23.1; these multiples are also inexpensive given its estimated 9.9% long-term earnings-growth rate.
Second, it’s a dividend-growth aristocrat. Saputo pays a quarterly dividend of $0.16 per share, equating to $0.64 per share annually, which gives it a 1.55% yield. A 1.55% yield is not very high, but it’s of the utmost importance to note that the dairy giant’s 6.7% dividend hike in August 2017 has it on track for fiscal 2018 to mark the 18th consecutive year in which it has raised its annual dividend payment, making it one of the best dividend-growth stocks in the food products industry today.
Including reinvested dividends, Saputo’s stock has returned more than 22% since I first recommended it on February 6, 2015, and I think it’s still a strong buy today, so take a closer look and consider using the post-earnings weakness to begin scaling in to long-term positions.
