The Motley Fool

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.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share. Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune. Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

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

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.