A Good Business Trading at a Good Valuation

Intertape Polymer Group (TSX:ITP) offers a 3.8% yield to help boost returns.

| More on:
packaging tape

Intertape Polymer Group (TSX: ITP) stock is about 25% lower than its 52-week high. It may be a good time to pick up some shares on this meaningful pullback.

Here’s an overview of its business.

The business

Intertape operates in the specialty packaging industry. It develops, manufactures, and sells a variety of paper and film-based pressure-sensitive and water-activated tapes, specialized films, and woven coated fabrics for industrial and retail use.

With its core market in North America, Intertape has 13 manufacturing facilities in North America and one each in Europe and Asia. Last year, it generated revenue of ~US$898 million and net income of nearly US$64 million, achieving a net margin of ~7.1%.

packaged boxes

Recent results

Intertape released its first-quarter results last week. Its revenue increased 14.5% to US$237.2 million primarily due to the Cantech acquisition and an increase in average selling price. Its gross margin decreased 2.4% to 21.3%. However, excluding the impact of a non-recurring expense, it would have only decreased 1%.

The company’s adjusted earnings before interest, taxes, depreciation, and amortization were essentially flat. They would have increased 7% if not for the impact of the non-recurring item.

Profitability

Intertape’s return on asset (ROA) and return on equity (ROE) have been +5% and +15%, respectively, since 2012. For the trailing 12 months, its ROA and ROE were +9% and +25%, respectively. So, management has been investing in the right places.

Dividend

Intertape offers a 3.8% yield. Its payout ratio is estimated to be ~50% this year. So, its dividend is intact. Investors should note that the company pays a U.S. dollar-denominated dividend, which will fluctuate with the strength of the U.S. dollar against the Canadian dollar. However, its dividends are still designated as eligible dividends for favourable taxation (compared to your job’s income).

Valuation and returns potential

At ~$18.75 per share, Intertape trades at a P/E of ~13.3, while the company is estimated to grow its earnings per share by +7% on average through 2019. At Thomson Reuters Corp., the 12-month consensus target on Intertape is US$19.70 per share, which represents ~39% near-term upside potential.

Additionally, Intertape has long-term double-digit growth potential. So, an investment in Intertape today can deliver some nice price appreciation in the next few years while offering a ~3.8% yield.

Investor takeaway

Intertape is a good business trading at a good valuation. Instead of thinking that it’ll deliver ~39% upside in the next 12 months, it’s more conservative to think that it can deliver an annualized rate of return of ~13% over the next three years, assuming ~9.5% upside potential each year and a ~3.8% dividend yield.

Fool contributor Kay Ng has no position in any of the stocks mentioned.

More on Dividend Stocks

A train passes Morant's curve in Banff National Park in the Canadian Rockies.
Dividend Stocks

This Isn’t a “Quick Win” Stock: It’s a “Steady Builder” One

CN Rail (TSX:CNR) may be the steadiest compounder on the entire Canadian stock market.

Read more »

dividend growth for passive income
Dividend Stocks

1 Undervalued Canadian Dividend Stock to Buy Now and Hold for Decades

This stock is down 15% from the recent highs and now offers an attractive dividend yield.

Read more »

House models and one with REIT real estate investment trust.
Dividend Stocks

Here’s the 6.8% Dividend Stock I Keep Coming Back To

SmartCentres REIT (TSX:SRU.UN) stands out as a near-7% yield dividend play that's worth coming back to for yield.

Read more »

Child measures his height on wall. He is growing taller.
Dividend Stocks

New to Investing? Start With This Canadian Dividend Stock

This Canadian stock has a proven record of paying dividends and consistently raising their payouts in the years ahead.

Read more »

ETFs can contain investments such as stocks
Dividend Stocks

VFV Isn’t a Complete Portfolio: Here’s What Canadian Investors May Be Missing

VFV feels like a complete portfolio, but it’s really a concentrated bet on U.S. large caps and the U.S. dollar.

Read more »

Partially complete jigsaw puzzle with scattered missing pieces
Dividend Stocks

Don’t Want to Wait a Year for a GIC Payout? This 11.7% Dividend Stock Pays You Monthly

Hamilton Canadian Financials Yield Maximizer ETF (TSX:HMAX) stands out as the ultimate passive-income booster, but it's far different than GICs.

Read more »

dividends grow over time
Dividend Stocks

GIC or Dividend Stock? Here’s Where I’d Put $10,000 for Income and Growth

Rogers can beat a one‑year GIC on income and long-term upside, but only if you can handle volatility and debt…

Read more »

Agricultural harvesting at the last light of day, aerial view.
Dividend Stocks

Potash Power Play: Why This Overlooked Commodity Could Be Canada’s Trump Card

Canada’s potash dominance gives Nutrien a strategic edge as trade tensions rise, making this overlooked commodity worth watching closely.

Read more »