Why Toromont Industries Ltd. Is Surging Over 6%

Toromont Industries Ltd. (TSX:TIH) is up over 6% following its Q4 2017 earnings release. What should you do now?

| More on:

Toromont Industries Ltd. (TSX:TIH), one of Canada’s largest Caterpillar dealers and one of North America’s leading providers of industrial and recreational refrigeration systems, announced its fiscal 2017 fourth-quarter and full-year earnings results after the market closed yesterday, and its stock has responded by surging over 6% at the open of today’s trading session. Let’s break down the results and the fundamentals of its stock to determine if we should consider buying in to this rally or if we should wait for it to subside.

The results that ignited the rally

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

Metric Q4 2017 Q4 2016 Change
Total revenue $822.77 million $492.22 million 67.2%
Gross profit $192.11 million $129.36 million 73.8%
Operating income $86.58 million $62.89 million 37.7%
Net earnings $59.14 million $45.53 million 29.9%
Basic earnings per share (EPS) $0.73 $0.58 25.9%

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

Metric Fiscal 2017 Fiscal 2016 Change
Total revenue $2,350.16 million $1,912.04 million 22.9%
Gross profit $555.95 million $468.06 million 18.8%
Operating income $249.58 million $216.56 million 15.2%
Net earnings $175.97 million $155.75 million 13.0%
Basic EPS $2.22 $1.99 11.6%

A cherry on top 

In the press release, Toromont announced a 21.1% increase to its quarterly dividend to $0.23 per share, and the first payment at the increased rate is payable on April 2 to shareholders of record at the close of business on March 9.

What should you do now?

The fourth quarter capped off a fantastic year for Toromont, and the dividend hike added to the positive sentiment, so I think the +6% rally is warranted; furthermore, I think its stock still represents an attractive long-term investment opportunity for two primary reasons.

First, it’s still undervalued. After the +6% pop, Toromont’s stock trades at 26.1 times fiscal 2017’s basic EPS of $2.22, which seems fair, but it trades at just 21 times the consensus EPS estimate of $2.76 for fiscal 2018 and only 18.3 times the consensus EPS estimate of $3.17 for fiscal 2019; these multiples are very inexpensive given its current earnings-growth rate and its long-term growth potential given the synergies that will come from its acquisition of Hewitt Group and the increased demand that will likely come from the significant infrastructure spending plans of both the provincial and federal governments.

Second, it’s a dividend-growth star. Toromont now pays an annual dividend of $0.92 per share, which brings its yield up to about 1.6%. Investors must note that the dividend hike it just announced has it on track for 2018 to mark the sixth consecutive year in which it has raised its annual dividend payment, and I think its very strong cash flow-generating ability will allow this streak to continue for many years to come.

With all of the information provided above in mind, I think Foolish investors should consider beginning to scale in to long-term positions in Toromont Industries today with the intention of adding to those positions on any weakness in the weeks ahead.

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 any stocks mentioned.

More on Investing

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

potted green plant grows up in arrow shape
Stocks for Beginners

3 Growth Stocks I’m Buying in April

These three growth stocks are up in the last year, and that is likely to continue on as we keep…

Read more »

clock time
Tech Stocks

Long-Term Investing: 3 Top Canadian Stocks You Can Buy for Under $20 a Share

These three under-$20 stocks offer excellent buying opportunities for long-term investors.

Read more »

Arrowings ascending on a chalkboard
Energy Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Canadian Natural Resources stock is well set up to beat the TSX as it continues to generate strong cash flows…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »