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Why Canadian Tire Corporation Limited Is Soaring Over 5%

Canadian Tire Corporation Limited (TSX:CTC.A), one of Canada’s largest retailers, announced its fiscal 2017 fourth-quarter and full-year earnings results this morning, and its stock has responded by soaring over 5% in early trading. Let’s break down the results and the fundamentals of its stock to determine if we should be long-term buyers today.

The results that ignited the rally

Here’s a breakdown of six of the most notable statistics from Canadian Tire’s 13-week period ended December 30, 2017, compared with its 13-week period ended December 31, 2016:

Metric Q4 2017 Q4 2016 Change
Retail sales $4,599.3 million $4,383.5 million 4.9%
Revenue $3,964.0 million $3,641.0 million 8.9%
Gross profit $1,393.9 million $1,296.7 million 7.5%
Adjusted EBITDA $558.5 million $506.6 million 10.2%
Net income attributable to shareholders of Canadian Tire $275.7 million $246.8 million 11.7%
Diluted earnings per share (EPS) $4.10 $3.46 18.5%

And here’s a breakdown of six notable statistics from Canadian Tire’s 52-week period ended December 30, 2017, compared with its 52-week period ended December 31, 2016:

Metric Fiscal 2017 Fiscal 2016 Change
Retail sales $14,980.7 million $14,370.6 million 4.2%
Revenue $13,434.9 million $12,681.0 million 5.9%
Gross profit $4,638.4 million $4,392.5 million 5.6%
Adjusted EBITDA $1,693.8 million $1,561.8 million 8.5%
Net income attributable to shareholders of Canadian Tire $735.0 million $669.1 million 9.9%
Diluted EPS $10.67 $9.22 15.7%

What should you do with Canadian Tire’s stock today?

It was an outstanding quarter and year for Canadian Tire, highlighted by EPS growth of over 15%, so I think the market has responded correctly by sending its stock soaring; I also think the stock still represents a very attractive investment opportunity for the long term for two primary reasons.

First, it’s still attractively valued. Even after the +5% pop, Canadian Tire’s stock trades at just 16.2 times fiscal 2017’s diluted EPS of $10.67 and only 14.9 times the consensus estimate of $11.56 for fiscal 2018, both of which are inexpensive given its strong growth rates and its targeted annual EPS growth of 10% or more through 2020.

Second, it’s a dividend aristocrat. Canadian Tire pays a quarterly dividend of $0.90 per share, representing $3.60 per share annually, which gives it a solid 2.1% yield. It’s also very important to note that the retail giant’s 38.5% dividend hike in November has it on track for 2018 to mark the eighth straight year in which it has raised its annual dividend payment, and I think its very strong financial performance will allow this streak to continue for decades.

With all of the information provided above in mind, I think Foolish investors seeking exposure to the retail industry should consider Canadian Tire to be one of the best investment options in the market today.

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Fool contributor Joseph Solitro has no position in any stocks mentioned.

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