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Why WestJet Airlines Ltd. Fell 1.29% on Tuesday

WestJet Airlines Ltd. (TSX:WJA), the second-largest airline company in Canada, reported its fourth-quarter earnings results Tuesday morning, and its stock responded by falling 1.29% in the day’s trading session. The company’s stock now sits more than 15% below its 52-week high of $28 reached back in October, so let’s break down the quarterly results and the fundamentals of the stock to determine if now is the time to buy.

Breaking down the quarterly results

Here’s a breakdown of eight of the most notable statistics from WestJet’s three-month period ended December 31, 2017, compared with the same period in 2016:

Metric Q4 2017 Q4 2016 Change
Total revenues $1,117.44 million $1,017.76 million 9.8%
Earnings from operations $78.04 million $85.27 million (8.5%)
Operating margin 7.0% 8.4% (140 basis points)
Net earnings $48.5 million $55.2 million (12.2%)
Net earnings per diluted share (EPS) $0.42 $0.47 (10.6%)
Operating cash flow $199.21 million $60.78 million 227.8%
Segment guests 6,010,069 5,424,052 10.8%
Load factor 82.6% 80.2% 240 basis points

What should you do now?

It was a decent quarter at best for WestJet, but decent results are rarely met by a positive reaction in the stock market, so I think the weakness in its stock in Tuesday’s trading session was warranted; that being said, even though WestJet did not perform all that great in the full year of 2017, with its revenues up 9.2% to $4.5 billion and its diluted EPS down 1.2% to $2.42 compared with 2016, I do think the stock represents an intriguing long-term investment opportunity for two reasons.

First, it’s very inexpensive. WestJet’s stock now trades at just 9.8 times fiscal 2017’s EPS of $2.42 and only 9.1 times the consensus analyst estimate of $2.60 for fiscal 2018, both of which are very inexpensive compared with its five-year average multiple of 11 as well as its long-term growth potential.

Second, it has a great dividend. WestJet pays a quarterly dividend of $0.14 per share, representing $0.56 per share annually, giving it a solid 2.4% yield. It’s also worth noting that the company has raised its dividend five times since it initiated its dividend in 2010, and I think its strong growth of operating cash flow, including its 47.6% year-over-year increase to $8.62 per share in 2017, could allow it to announce another hike at some point this or next year.

With all of the information provided above in mind, I think WestJet Airlines represents a solid long-term investment opportunity, but I must add that I still prefer Air Canada today, and a couple of my Foolish colleagues agree.

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Fool contributor Joseph Solitro has no position in the companies mentioned.

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