Although the worsening stock market environment over the last year has impacted stocks across almost every sector, one of the hardest hit businesses has been Corus Entertainment (TSX:CJR.B), the Canadian media business that runs several TV channels and radio stations across the country.
Corus is a stock that has been negatively viewed for some time. The media company has faced headwinds in recent years, primarily driven by the shift in how consumers access and consume media.
The surge in cord-cutting, whereby consumers cut cable subscriptions in favour of on-demand streaming platforms, has posed challenges for the company even as Corus has made its own investments in streaming services.
Additionally, the changing advertising landscape has added another layer of complexity. With the rise of social media and digital platforms offering targeted, data-driven advertising solutions, some brands have been redirecting their ad dollars away from traditional TV broadcasts.
Furthermore, the radio industry has seen significant disruption as well, with the rapid rise in popularity of podcasts and music streaming apps.
Plus, on top of the industry-wide headwinds Corus has faced, it’s also being impacted in the short term by the worsening economic environment.
So why do I still own Corus Entertainment stock? Because it’s unbelievably cheap and generates impressive cash flow, which helps fund its attractive 8.3% dividend yield.
Corus Entertainment stock is unbelievably cheap
One of the main reasons to own Corus Entertainment stock is that it’s currently severely undervalued. Even with the company’s current operations being affected and analysts expecting its earnings will be impacted, the stock still trades at a forward price-to-earnings ratio of just 6 times.
That’s well below its 10-year average of 8.1 times. Plus, its dividend yield of 8.3% today is also higher than its historical average of 7.4%. Therefore, with Corus trading below $1.50 a share, it’s ultra-cheap.
This value Corus offers became even more evident recently when it sold off an asset that generates just 2% of its sales for proceeds that equated to more than 50% of its market cap.
In addition, while Corus has been cheap for some time, it’s even more undervalued today due to the current headwinds it faces as a result of a weakening economic environment.
While many other businesses have yet to fully feel the effects of a recession, Corus has already been heavily impacted.
Typically, a reduction in advertising spending is a leading indicator of a recession. So although a recession has yet to materialize and signs in the economy continue to remain positive, such as the strength in the labour market, Corus has been grappling with lower revenue for several quarters now.
Advertising revenues won’t remain low forever
Although advertising revenues have taken a hit and are the biggest factor impacting Corus Entertainment’s business and share price right now, this environment won’t last forever. So with CJR stock trading unbelievably cheap, it’s one of the best stocks to buy now.
However, while sales and earnings per share (EPS) expectations are being impacted this year in fiscal 2023 (which ends in August), analysts expect they will begin to recover by next year.
In fact, for fiscal 2024, analysts estimate Corus Entertainment stock can generate $0.24 EPS and in fiscal 2025, the estimates are for $0.51.
Therefore, with Corus trading at just $1.44 as of last Friday’s close, it’s trading at just 2.8 times its expected fiscal 2025 earnings. Furthermore, it’s trading at just 1.9 times its combined earnings through fiscal 2024 and 2025.
So although Corus has been facing significant headwinds in recent years and now is being impacted by the expectation of a recession, the stock is still unbelievably cheap, and the value it offers can’t be ignored.
