Why Emera Inc. Is Down Over 3%

Emera Inc. (TSX:EMA), one of North America’s largest electric and gas utilities companies, announced its fiscal 2017 fourth-quarter and full-year earnings results after the market closed on Friday, and its stock has responded by falling over 3% at the open of trading today. The stock has now fallen more than 15% from its 52-week high of $49.48 reached back in December, so let’s break down the quarterly results, the annual results, and the fundamentals of the stock to determine if we should consider using this weakness as a long-term buying opportunity.

Breaking down the Q4 and annual results

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

Metric Q4 2017 Q4 2016 Change
Operating revenues $1,473 million $1,513 million (2.6%)
Adjusted EBITDA $559 million $498 million 12.2%
Income from operations $236 million $208 million 13.5%
Adjusted net income attributable to common shareholders $137 million $104 million 31.7%
Adjusted earnings per common share (EPS) $0.64 $0.51 25.5%

And here’s a breakdown of seven notable financial statistics from its 12-month period ended December 31, 2017, compared with the same period in 2016:

Metric Fiscal 2017 Fiscal 2016 Change
Operating revenues $6,226 million $4,277 million 45.6%
Adjusted EBITDA $2,295 million $1,744 million 31.6%
Income from operations $1,391 million $555 million 150.6%
Adjusted net income attributable to common shareholders $524 million $475 million 10.3%
Adjusted EPS, excluding one-time items $2.46 $2.39 2.9%
Operating cash flow $1,193 million $1,053 million 13.3%
Dividends per common share declared $2.1325 $1.995 6.9%

What should you do with the stock today?

It was a solid quarter overall for Emera, and it capped off a very strong year for the company, so I do not think the +3% drop in its stock is warranted; that being said, I think the decline represents a very attractive entry point for long-term investors for two fundamental reasons.

First, it’s undervalued. Emera’s stock trades at just 17.1 times fiscal 2017’s adjusted EPS of $2.46 and a mere 14.7 times the consensus analyst estimate of $2.86 for fiscal 2018, both of which are inexpensive given the low-risk nature of its business model, its very strong cash flow-generating ability, and its estimated 6.65% long-term earnings-growth rate; these multiples are also inexpensive compared with its five-year average multiple of 18.8.

Second, it has a phenomenal dividend. Emera currently pays a quarterly dividend of $0.565 per share, representing $2.26 per share annually, which gives it a massive 5.4% yield. On top of offering a high yield, the utility company is on track for 2018 to mark the 12th consecutive year in which it has raised its annual dividend payment, and it has a dividend-growth program in place that calls for annual growth of approximately 8% through 2020.

With all of the information provided above in mind, I think Foolish investors searching for a low-risk investment with a steady growth rate and high dividend should strongly consider making Emera a long-term core holding.

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

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