Why Capital Power Corp. Fell 2.35% on Wednesday

Capital Power Corp.’s (TSX:CPX) stock fell 2.35% on Wednesday following its Q3 earnings release. Should you buy on the dip? Let’s find out.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Capital Power Corp. (TSX:CPX), one of North America’s largest independent power producers, announced its third-quarter earnings results on Wednesday morning, and its stock responded by falling 2.35% in the day’s trading session. Let’s break down the quarterly results and the fundamentals of its stock to determine if we should consider using this weakness as a long-term buying opportunity or wait for an even better entry point in the trading sessions ahead.

The results that ignited the sell-off 

Here’s a quick breakdown of eight of the most notable financial statistics from Capital Power’s three-month period ended on September 30, 2017, compared with the same period in 2016:

Metric Q3 2017 Q3 2016 Change
Revenues and other income $346 million $374 million (7.5%)
Adjusted EBITDA $158 million $148 million 6.8%
Normalized earnings attributable to shareholders $29 million $30 million (3.3%)
Normalized earnings per share (EPS) $0.28 $0.31 (9.7%)
Net operating cash flow $120 million $105 million 14.3%
Adjusted funds from operations $134 million $79 million 69.6%
Electricity generation (Gigawatt hours) 4,725 3,930 20.2%
Generation facility availability 97% 96% 100 basis points

What should you do with Capital Power’s stock now?

Even though Capital Power’s third-quarter results were “in line with management’s expectations,” it was a fairly weak quarter overall, so I think the 2.35% decline in its stock was warranted. That being said, I think the decline has resulted in a very attractive entry point for long-term investors for two fundamental reasons.

First, it’s undervalued. Capital Power’s stock now trades at just 17.8 times fiscal 2017’s estimated EPS of $1.38 and only 16.6 times fiscal 2018’s estimated EPS of $1.48, both of which are very inexpensive compared with its five-year average multiple of 29.2; these multiples are also inexpensive given its long-term earnings-growth potential.

Second, it has one of the best dividends in the industry. Capital Power pays a quarterly dividend of $0.4175 per share, equal to $1.67 per share annually, which gives it a juicy 6.8% yield. It’s also important to note that the company’s recent dividend hikes, including its 7.1% hike in July, have it on track for 2017 to mark the fourth straight year in which it has raised its annual dividend payment, and that it has a dividend-growth program in place that calls for annual growth of approximately 7% through 2020, making it both a high-yield and dividend-growth play.

With all of the information provided above in mind, I think all Foolish investors should consider initiating positions in Capital Power today with the intention of adding to those positions on any further weakness in the weeks ahead.

Should you invest $1,000 in Fortis right now?

Before you buy stock in Fortis, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Fortis wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

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 Joseph Solitro has no position in the companies mentioned.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

A worker gives a business presentation.
Dividend Stocks

Market Dip: Opportunity or Risk This April?

This market dip might have investors worried, but should they be excited instead?

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

Why I’d Add This Top TSX Dividend Stock to My TFSA During the Current Dip

The market is full of volatility right now. Fortunately, this top TSX dividend trades at a discount and pays a…

Read more »

Pile of Canadian dollar bills in various denominations
Dividend Stocks

Invest $20,000 in 2 TSX Stocks for $1,421.09 in Passive Income

Are you looking to bump up your passive income? Then consider these two TSX stocks.

Read more »

A plant grows from coins.
Dividend Stocks

Where I’d Invest in Canadian Value Stocks for Long-Term Compounding

When markets plunge, Warren Buffett's wisdom shines: Get greedy when others are fearful. Canadian value stocks like Scotiabank await patient…

Read more »

analyze data
Dividend Stocks

How I’d Invest $28,000 in Canadian Natural Resource Stock to Amass Personal Wealth

Investing in TSX dividend stocks such as Enbridge can help you earn a passive-income stream in 2025.

Read more »

hand stacks coins
Dividend Stocks

Got $400? How I’d Start Building Income With 3 High-Yield Stocks for the Long Term

These high-yield dividend stocks have a solid payout history, making them compelling investments to generate passive income.

Read more »

A close up color image of a small green plant sprouting out of a pile of Canadian dollar coins "loonies."
Dividend Stocks

I’d Put $15,000 in These 3 Dividend-Growth Champions for Increasing Income Potential

Want to offset some volatility? Here are three defensive dividend-growth champions that can generate a juicy yield right now.

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

Transform Your TFSA Into a Cash-Creating Machine With $7,000

Discover how the Tax-Free Savings Account can be your golden goose for generating cash without losing your investment.

Read more »