This Canadian Dividend Aristocrat Offers 42% Upside!

Intertape Polymer Group Inc. (TSX:ITP) is trading near 52-week lows and is a good rebound candidate for the second half of the year.

| More on:

For a value investor, it’s exciting to discover a company that is unloved by the market. Sometimes there are valid reasons for a stock’s decline. Stay away from these.

In other cases, the market has overreacted to earnings and one-time events. Perhaps there’s no clear reason for the decline. Regardless, these are the companies value investors seek out.

One easy way to identify which companies that are unloved by the market is to seek out those that are trading near 52-week lows. One such company is Intertape Polymer Group Inc. (TSX:ITP).

Year-to-date, the company has lost almost 17% of its value. Intertape’s current market price is more than 30% below its 52-week high of $25.41 reached in July of last year. It has been on a steady decline ever since.

Is this Canadian Dividend Aristocrat, who has raised dividends for six consecutive years, a value trap? Let’s take a look.

Mixed earnings

Intertape is the furthest thing from consistent. The company has missed earnings estimates in three of the last four quarters and missed on the top line in each case. I believe this is the main reason for the company’s recent struggles.

The company’s most recent earnings miss of 25% was one of the more pronounced. Since posting first-quarter results, Intertape stock has dropped another 5%.

Declining financials

Let’s dig deeper into those earnings.

At first glance, the company’s 14% increase in first quarter revenues is a good sign. However, it was largely a result of the additional sales from a recent acquisition. Organic volumes were actually negative.

In the first quarter, gross margins dropped by 100 base percentage point (BPS) year-over-year (YOY) and 150 BPS over the fourth quarter of 2017 — not great.

Likewise, cash flows and earnings before interest, taxes, depreciation and amortization also took a turn for the worse.

Outlook

According to its first-quarter presentation, Intertape expects revenues and EBITDA to increase in the second quarter. Long-term, the company expects to achieve a revenue compound annual growth rate (CAGR) of 17% through 2022.

What about earnings? Analysts’ expect the company to post 14% earnings growth in 2019.

Management also tried to ease concerns over a declining gross margin. On its first-quarter earnings call, President and Chief Executive Officer Gregory Yull commented that the “gross margin compression…is expected to be temporary”.

Bargain prices

Trading at 11 times earnings, Intertape looks cheap. In comparison, the company has historically traded at a multiple of 13 times earnings. Should the company trade in line with historical averages, the stock would be looking at 20% growth.

Analysts’ also have high expectations for the company. Five of the seven analysts covering the company rate it a buy. Likewise, the average street price target is $25.17, which implies 42% upside!

The company has struggled to execute on its strategy, but it continues to grow revenues at an impressive pace. Trading at 52-week lows, I believe that the market is overly bearish and discounting its potential growth.

Intertape is a good rebound candidate for the second half of the year.

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 Mat Litalien has no position in any of the companies listed.   

More on Dividend Stocks

edit Person using calculator next to charts and graphs
Dividend Stocks

Better Buy: Fortis Stock vs Enbridge

Fortis stock and Enbridge are top dividend stocks on the TSX today. Which stock is better buy for safe dividend…

Read more »

Canadian Dollars
Dividend Stocks

How to Make $1,500 in Passive Income 4 Times a Year

Blue-chip TSX stocks such as Enbridge can enable investors to create game-changing wealth over the long term.

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Dividend Stocks

TFSA: How to Easily Turn $10,000 Into $500/Year of Passive Income

You don't need to be a stock market expert to turn $10,000 into a $500 of tax-free passive income. Here's…

Read more »

protect, safe, trust
Dividend Stocks

Worried About a Recession? 2 TSX Blue-Chip Stocks to Protect Your Capital

If you fear a recession coming on soon, here are two blue-chip Canadian stocks to add to your portfolio for…

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

New TFSA Investors: 2 Top TSX Stock to Create a Self-Directed Retirement Fund

Top TSX dividend stocks are now on sale for new TFSA investors.

Read more »

money while you sleep
Dividend Stocks

Worried About the Market? 2 Dividend Stocks That Let You Sleep at Night

Here's why Restaurant Brands (TSX:QSR) and Enbridge (TSX:ENB) are two top dividend stocks to buy in this uncertain market right…

Read more »

money cash dividends
Dividend Stocks

How 1 Absurdly Cheap Stock Can Generate $100 in Monthly Passive Income

You can generate $100 or more in monthly passive income from one high-yield stock trading at an absurdly cheap price…

Read more »

Retirees sip their morning coffee outside.
Dividend Stocks

How I’d Invest $1000 in February to Make Easy Passive Income

Looking to earn some extra passive income in February but don't have much cash? Build an easy portfolio with these…

Read more »