Although many stocks have been impacted in the current market environment, one of the biggest underperformers has to be Corus (TSX: CJR.B), the Canadian media company with operations in radio and TV.
For example, over the last two years, it’s seen its stock price continuously fall and has lost more than 75% of its value. That’s not entirely its fault, though.
Worsening economic conditions have heightened risk and uncertainty in the stock market, lowering the value that investors are willing to pay for Corus. In addition, though, advertising revenues have contracted considerably, which isn’t unusual to see in the lead-up to a recession.
So, although Corus’s operations have been impacted and the stock price is ultra-low, many of the major headwinds it faces right now are only temporary. And on top of that, the company continues to generate impressive cash flow each year.
Therefore, with the stock trading extremely cheap, paying an attractive dividend yield of roughly 9.3%, and with the potential to recover in the near term, is the stock worth buying today, and when can it finally bounce back?
How cheap is Corus stock?
It’s no secret that Corus is trading cheaply today and has been for a while. With the stock trading at roughly $1.30 a share, it has a market cap of just $250 million. That’s not only extremely low and cheap for Corus, a stock that only a few years ago had a market cap north of $1 billion.
It’s also less than double the free cash flow that Corus is expected to earn in fiscal 2024 (which begins next month) and roughly in line with the free cash flow analysts expect it will earn in fiscal 2025.
And even with its business operations being impacted and its earnings temporarily declining in this environment, Corus still only trades at a forward price-to-earnings ratio of just 5.3 times.
Therefore, it’s clear from Corus’s valuation that the company is unbelievably undervalued. Perhaps the most obvious sign of that was when Corus sold off one of its assets last month.
The media company agreed to sell Toon Boom, an animation production software company, for just over $140 million. Meanwhile, Toon Boom accounted for just 2% of Corus’s annual sales. So, Corus received cash that was equivalent to more than 50% of its market cap for an asset that generated only 2% of its revenue.
This clearly shows that Corus stock is extremely cheap, especially when you consider the sum of all its assets.
At a valuation of more than $140 million, Toon Boom was sold for roughly 10 times its earnings before interest, taxes, depreciation and amortization (EBITDA). Meanwhile, Corus only trades at current enterprise value (EV) to EBITDA of just 5.1 times today.
Clearly, the stock is extremely cheap, and its dividend yield of more than 9% continues to look sustainable.
For example, to fund the current dividend for a year, Corus needs just under $24 million in free cash flow to do so. But even for fiscal 2023 and fiscal 2024, when analysts know Corus’s business is experiencing significant headwinds, it’s still expected to earn free cash flow of $128 million and $165 million, respectively.
While you can buy Corus at this unbelievable valuation and lock in such an appealing dividend, it’s easily one of the best stocks to buy before it starts to rally.
Is Corus on the verge of a rebound rally?
Trying to predict when any stock will rally is very difficult. However, the good news for Corus is that advertising spending has already been impacted for more than a year now. And the advertising industry is well known to be one of the first impacted, even before a recession fully materializes.
Therefore, as advertising dollars start to pick up and the industry recovers, Corus could see a rapid rally as a result.
So, while the stock is trading dirt cheap, and while it offers an incredible dividend that yields more than 9%, it’s certainly one of the top stocks to consider today and one with significant potential for a massive recovery rally.
