Finning International Inc. (TSX:FTT), the world’s largest Caterpillar equipment dealer, released its fourth-quarter earnings results this morning, and its stock has responded by rising about 1% in early trading. Let’s break down the quarterly results and the fundamentals of its stock to determine if we should be long-term buyers today.
A very strong quarter of double-digit growth
Here’s a quick breakdown of 10 of the most notable statistics from Finning’s three-month period ended December 31, 2017, compared with the same period in 2016:
|Metric||Q4 2017||Q4 2016||Change|
|New equipment revenues||$661 million||$519 million||27.4%|
|Used equipment revenues||$110 million||$96 million||14.6%|
|Equipment rental revenues||$60 million||$56 million||7.1%|
|Product support revenues||$901 million||$816 million||10.4%|
|Total revenues||$1,735 million||$1,491 million||16.4%|
|Adjusted EBITDA||$158 million||$117 million||35.0%|
|Adjusted EBIT||$113 million||$70 million||61.4%|
|Free cash flow||$350 million||$113 million||209.7%|
|Adjusted net income||$67 million||$47 million||42.6%|
|Adjusted earnings per share (EPS)||$0.40||$0.28||42.9%|
What should you do now?
It was a phenomenal quarter overall for Finning, and it capped a fantastic year for the company, in which its revenue increased 11.3% to $6.27 billion, its adjusted net income increased 55.8% to $229 million, and its adjusted EPS increased 54.5% to $1.36 compared with fiscal 2016. With these incredibly strong results in mind, I think the market has responded correctly by sending its stock higher, and I think it still represents a great investment opportunity for the long term for two fundamental reasons.
First, it’s undervalued. Finning’s stock currently trades at 25 times fiscal 2017’s adjusted EPS of $1.36 and 19.7 times the consensus analyst estimate of $1.73 for fiscal 2018, both of which are inexpensive given its current earnings-growth rate and its estimated 10% long-term earnings-growth rate.
Second, it’s a dividend aristocrat. Finning pays a quarterly dividend of $0.19 per share, representing $0.76 per share annually, which gives it a solid 2.2% yield. Its yield may not be the highest around, but it’s very important to note that its 4.1% dividend hike in August 2017 has it positioned for 2018 to mark the 17th consecutive year in which it has raised its annual dividend payment, making it one of the best dividend-growth stocks in the market today.
With all of the information provided above in mind, I think Foolish investors should strongly consider beginning to scale in to long-term positions in Finning International 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. Finning International is a recommendation of Stock Advisor Canada.