2-for1 Sale
Transcontinental Inc. (TSX:TCL.A), Canada’s largest printer and one of North America’s leading suppliers of flexible packaging, announced its fourth-quarter earnings results after the market closed on Thursday, and its stock has responded by falling over 1% in early trading today. Let’s break down the results and the fundamentals of its stock to determine if we should consider using this weakness as a long-term buying opportunity.
A lacklustre quarterly performance
Here’s a quick breakdown of eight of the most notable financial statistics from Transcontinental’s three-month period ended October 29, 2017, compared with its three-month period ended October 31, 2016:
| Metric | Q4 2017 | Q4 2016 | Change |
| Printing & Packaging Sector revenue | $479.3 million | $484.6 million | (1.1%) |
| Media Sector revenue | $54.1 million | $82.1 million | (34.1%) |
| Total revenue | $527.2 million | $555.6 million | (5.1%) |
| Adjusted operating earnings | $98.4 million | $107.4 million | (8.4%) |
| Adjusted operating margin | 18.7% | 19.3% | (60 basis points) |
| Adjusted net earnings | $68.3 million | $76.6 million | (10.8%) |
| Adjusted net earnings per share (EPS) | $0.88 | $0.99 | (11.1%) |
| Cash flows from operating activities | $111.4 million | $60.8 million | 83.2% |
Should you buy on the dip?
It was a disappointing quarter for Transcontinental, and it finished off a weak year for the company, in which its revenue decreased 0.6% to $2.01 billion, and its adjusted EPS increased just 3.2% to $2.61 when compared with fiscal 2016. With these results in mind, I think the weakness in its stock is warranted, but I think it represents an intriguing long-term investment opportunity for two fundamental reasons.
First, it trades at very low valuations. Transcontinental’s stock now trades at just 9.8 times fiscal 2017’s adjusted EPS of $2.61 and only 9.7 times fiscal 2018’s estimated EPS of $2.63, both of which are inexpensive given its strong cash flow-generating ability and its position as a leader in the majority of the markets it serves.
Second, it’s a dividend aristocrat. Transcontinental currently pays a quarterly dividend of $0.20 per share, representing $0.80 per share annually, which gives it a juicy 3.1% yield today. It’s also very important to note that 2017 marked the 16th consecutive year in which it has raised its annual dividend payment, and its 8.1% hike in March has it positioned for fiscal 2018 to mark the 17th consecutive year with an increase.
Transcontinental’s stock has returned over 78% when including reinvested dividends since I first recommended it on December 17, 2014, and I think it still represents an attractive long-term investment opportunity today, so take a closer look and consider beginning to scale in to a position.
