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Inter Pipeline Ltd. Reports Record 2017 Results: Time to Buy?

Inter Pipeline Ltd. (TSX:IPL), one of the largest owners and operators of energy infrastructure assets in western Canada and Europe, released its fiscal 2017 fourth-quarter and full-year earnings results after the market closed on Thursday, and its stock responded by making a slight move to the downside in Friday’s trading session. Let’s break down the earnings results and the fundamentals of its stock to determine if we should be long-term buyers today.

Breaking it all down

Here’s a quick breakdown of 10 of the most notable statistics from Inter Pipeline’s three-month period ended December 31, 2017, compared with the same period in 2016:

Metric Q4 2017 Q4 2016 Change
Total revenue $618.3 million $560.7 million 10.3%
Funds from operations $267.8 million $254.7 million 5.1%
Funds from operations per share $0.71 $0.71 Unchanged
Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) attributable to shareholders $311.1 million $283.9 million 9.6%
Net income attributable to shareholders $141.9 million $125.8 million 12.8%
Net income per share (EPS) $0.37 $0.35 5.7%
Total pipeline volumes (thousands of barrels per day) 1,416.3 1,372.8 3.2%
Total Natural Gas Liquids (NGL) processing volumes (thousands of barrels per day) 127.7 143.6 (11.1%)
Bulk liquid storage utilization rate 91% 99% (800 basis points)
Dividends declared per share $0.415 $0.40 3.8%

And here’s a quick breakdown of 10 notable statistics from Inter Pipeline’s 12-month period ended December 31, 2017, compared with the same period in 2016:

Metric Fiscal 2017 Fiscal 2016 Change
Total revenue $2,260.6 million $1,824.6 million 23.9%
Funds from operations $990.6 million $848.8 million 16.7%
Funds from operations per share $2.65 $2.47 7.3%
Adjusted EBITDA $1,149.1 million $1,007.7 million 14.0%
Net income $526.7 million $449.7 million 17.1%
Net EPS $1.41 $1.31 7.6%
Total pipeline volumes (thousands of barrels per day) 1,390.6 1,296.6 7.2%
Total NGL processing volumes 118.8 111.7 6.4%
Bulk liquid storage utilization rate 96% 98% (200 basis points)
Dividends declared per share $1.63 $1.57 3.8%

Is now the time to buy Inter Pipeline?

The fourth quarter was outstanding overall for Inter Pipeline, and it capped off a year to remember for the company, highlighted by record funds from operations, net income, and average pipeline throughput volume per day. With its very strong results in mind, I think its stock should have reacted by soaring on Friday; furthermore, I think the stock represents a very attractive long-term investment opportunity today for two primary reasons.

First, it’s undervalued. Inter Pipeline’s stock currently trades at just 16.2 times fiscal 2017’s EPS of $1.41 and only 14.6 times the consensus EPS estimate of $1.56 for fiscal 2018, both of which are inexpensive compared with its five-year average multiple of 23.2 and its long-term growth potential; these multiples are also inexpensive given its very strong cash flow-generating ability due to 77% of its EBITDA coming from cost-of-service and fee-based contracts.

Second, it has a high and safe dividend yield with an impressive track record of growth. Inter Pipeline currently pays a monthly dividend of $0.14 per share, representing $1.68 per share annually, which gives it a massive 7.4% yield. It’s also important to note that the infrastructure giant’s 3.7% dividend hike in November has it on track for 2018 to mark the 10th 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 many years to come.

With all of the information provided above in mind, I think all Foolish investors should strongly consider initiating long-term positions in Inter Pipeline today.

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

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