Thomson Reuters Corp. (TSX:TRI)(NYSE:TRI), the world’s leading source of intelligent information for businesses and professionals, released its second-quarter earnings results this morning, and its stock has responded by rising more than 4%. Let’s take a closer look at the earnings results, two other important announcements made by the company, and the fundamentals of its stock to determine if we should consider buying into this rally or wait for a better entry point in the trading sessions ahead.
The results that ignited the rally
Here’s a quick breakdown of 10 of the most notable statistics from Thomson Reuters’s three-month period ended on June 30, 2017, compared with the same period in 2016:
| Metric | Q2 2017 | Q2 2016 | Change |
| Revenues: Financial & Risk segment | US$1,517 | US$1,524 | (0.5%) |
| Revenues: Legal segment | US$842 million | US$846 million | (0.5%) |
| Revenues: Tax & Accounting segment | US$350 million | US$324 million | 8% |
| Total revenues | US$2,782 million | US$2,769 million | 0.5% |
| Operating profit | US$399 million | US$401 million | (0.5%) |
| Adjusted EBITDA | US$838 million | US$757 million | 10.7% |
| Adjusted EBITDA margin | 30.1% | 27.3% | 280 basis points |
| Adjusted earnings | US$436 million | US$357 million | 22.1% |
| Adjusted earnings per share (EPS) | US$0.60 | US$0.47 | 27.7% |
| Free cash flow | US$580 million | US$525 million | 10.5% |
Other notable announcements
In addition to its second-quarter earnings results, Thomson Reuters made two other notable announcements in its press release.
First, the company raised its full-year outlook for adjusted EBITDA margin and adjusted EPS, and it reaffirmed its full-year outlook for revenue growth and free cash flow. Here’s a breakdown of its updated outlook compared with its previous outlook:
| Metric | Updated outlook | Previous outlook |
| Revenue growth | Low single-digit percentage growth | Low single-digit percentage growth |
| Adjusted EBITDA margin | 29.3-30.3% | 28.8-29.8% |
| Free cash flow | US$900 million-US$1.2 billion | US$900 million-US$1.2 billion |
| Adjusted EPS | US$2.40-US$2.45 | US$2.35 |
Second, it announced that its next quarterly dividend payment of US$0.345 per share will come on September 15 to shareholders of record as of August 17.
What should you do with Thomson Reuters’s stock now?
It was a good quarter overall for Thomson Reuters, and it capped off a quality first half of the year for the company, in which its revenues increased 0.6% to US$5.6 billion and its adjusted EPS increased 32.3% to US$1.23. Its second-quarter adjusted EPS also surpassed the consensus estimates of analysts, which called for US$0.52, while its revenues came in line with expectations. I think its stock is rallying as a result of the earnings beat and raised outlook, which is definitely warranted, and I think it still represents an attractive long-term investment opportunity today for two main reasons.
First, it’s still attractively valued. Thomson Reuters’s stock trades at less than 20 times the median of its updated EPS outlook on fiscal 2017 and less than 19 times the consensus analyst estimate of US$2.57 for fiscal 2018, both of which are inexpensive compared with its five-year average price-to-earnings multiple of 38.9 and the industry average multiple of 34.5. These multiples are also inexpensive given its current earnings-growth rate and its estimated 11% long-term growth rate.
Second, it has a great dividend. Thomson Reuters pays a quarterly dividend of US$0.345 per share, equal to US$1.38 per share annually, which gives it a solid 2.9% yield. It’s also very important to note that the company’s 1.5% dividend hike in February has it on pace for 2017 to mark the 24th consecutive year in which it has raised its annual dividend payment, making it one of the market’s best dividend-growth stocks.
With all of the information provided above in mind, I think Foolish investors should consider beginning to scale in to long-term positions in Thomson Reuters over the next couple of trading sessions.
