Why Emera Inc. Is Down Over 3%

Emera Inc. (TSX:EMA) is down over 3% in response to its Q4 2017 earnings release on Friday afternoon. What should you do with the stock now?

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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.

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 the companies mentioned.

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