Spring Sale
Inter Pipeline Ltd. (TSX:IPL), one of the largest owners and operators of energy infrastructure assets in western Canada and Europe, released its second-quarter earnings results after the market closed on Thursday, and its stock has responded by falling over 2% in early trading. The stock now sits more than 22% below its 52-week high of $30.07 reached back in January, so let’s take a closer look at the results and the fundamentals of its stock to determine if we should consider initiating positions today.
Breaking down Inter Pipeline’s Q2 performance
Here’s a breakdown of 10 of the most notable statistics from Inter Pipeline’s three-month period ended on June 30, 2017, compared with the same period in 2016:
| Metric | Q2 2017 | Q2 2016 | Change |
| Revenue | $516.0 million | $413.0 million | 24.9% |
| Funds from operations (FFO) | $207.0 million | $196.7 million | 5.2% |
| FFO per share | $0.56 | $0.58 | (3.4%) |
| Adjusted EBITDA | $244.8 million | $242.2 million | 1.1% |
| Cash provided by operating activities | $232.2 million | $213.0 million | 9% |
| Net earnings | $102.3 million | $122.9 million | (16.8%) |
| Net earnings per share (EPS) | $0.27 | $0.34 | (20.6%) |
| Average pipeline throughput volumes (barrels per day) | 1,326,600 | 1,213,900 | 9.3% |
| Average natural gas liquids processing (barrels per day) | 96,100 | 94,100 | 2.1% |
| Bulk liquid storage capacity utilization | 98% | 97% | 100 basis points |
Should you buy Inter Pipeline today?
It was a decent quarter overall for Inter Pipeline, but the results came in mixed compared with the consensus estimates of analysts polled by Thomson Reuters, which called for EPS of $0.34 on revenue of $487.55 million, so I think this is the primary reason the stock is down over 2%. However, it’s important to note that the company performed very well in the first half of 2017, with its revenue up 32% to $1.09 billion, its adjusted EBITDA up 13.5% to $534.4 million, its FFO up 18.6% to $453.9 million, and its net income up 6.5% to $242.3 million.
With all of this being said, I think Inter Pipeline represents a very attractive long-term investment opportunity today for two primary reasons.
First, it’s extremely undervalued. Inter Pipeline’s stock now trades at just 15.9 times fiscal 2017’s estimated EPS of $1.47 and only 15.1 times fiscal 2018’s estimated EPS of $1.54, both of which are very inexpensive compared with its five-year average price-to-earnings multiple of 23.4. These multiples are also inexpensive given its estimated 5.1% long-term earnings-growth rate.
Second, it has a fantastic dividend. Inter Pipeline pays a monthly dividend of $0.135 per share, equal to $1.62 per share annually, which gives its stock a yield of about 6.95% at the time of the writing. The company has also raised its annual dividend payment for eight consecutive years, and its 3.8% hike in November 2016 has it on track for 2017 to mark the ninth consecutive year with an increase, making it an income, high-yield, and dividend-growth play.
With all of the information provided above in mind, I think all Foolish investors should strongly consider using the post-earnings weakness in Inter Pipeline to begin scaling in to long-term positions.
