Stock Up Sale
Emera Inc. (TSX:EMA), one of North America’s largest electric and gas utilities companies, announced its fiscal 2017 fourth-quarter and full-year earnings results after the market closed on Friday, and its stock has responded by falling over 3% at the open of trading today. The stock has now fallen more than 15% from its 52-week high of $49.48 reached back in December, so let’s break down the quarterly results, the annual results, and the fundamentals of the stock to determine if we should consider using this weakness as a long-term buying opportunity.
Breaking down the Q4 and annual results
Here’s a quick breakdown of five of the most notable financial statistics from Emera’s three-month period ended December 31, 2017, compared with the same period in 2016:
| Metric | Q4 2017 | Q4 2016 | Change |
| Operating revenues | $1,473 million | $1,513 million | (2.6%) |
| Adjusted EBITDA | $559 million | $498 million | 12.2% |
| Income from operations | $236 million | $208 million | 13.5% |
| Adjusted net income attributable to common shareholders | $137 million | $104 million | 31.7% |
| Adjusted earnings per common share (EPS) | $0.64 | $0.51 | 25.5% |
And here’s a breakdown of seven notable financial statistics from its 12-month period ended December 31, 2017, compared with the same period in 2016:
| Metric | Fiscal 2017 | Fiscal 2016 | Change |
| Operating revenues | $6,226 million | $4,277 million | 45.6% |
| Adjusted EBITDA | $2,295 million | $1,744 million | 31.6% |
| Income from operations | $1,391 million | $555 million | 150.6% |
| Adjusted net income attributable to common shareholders | $524 million | $475 million | 10.3% |
| Adjusted EPS, excluding one-time items | $2.46 | $2.39 | 2.9% |
| Operating cash flow | $1,193 million | $1,053 million | 13.3% |
| Dividends per common share declared | $2.1325 | $1.995 | 6.9% |
What should you do with the stock today?
It was a solid quarter overall for Emera, and it capped off a very strong year for the company, so I do not think the +3% drop in its stock is warranted; that being said, I think the decline represents a very attractive entry point for long-term investors for two fundamental reasons.
First, it’s undervalued. Emera’s stock trades at just 17.1 times fiscal 2017’s adjusted EPS of $2.46 and a mere 14.7 times the consensus analyst estimate of $2.86 for fiscal 2018, both of which are inexpensive given the low-risk nature of its business model, its very strong cash flow-generating ability, and its estimated 6.65% long-term earnings-growth rate; these multiples are also inexpensive compared with its five-year average multiple of 18.8.
Second, it has a phenomenal dividend. Emera currently pays a quarterly dividend of $0.565 per share, representing $2.26 per share annually, which gives it a massive 5.4% yield. On top of offering a high yield, the utility company is on track for 2018 to mark the 12th consecutive year in which it has raised its annual dividend payment, and it has a dividend-growth program in place that calls for annual growth of approximately 8% through 2020.
With all of the information provided above in mind, I think Foolish investors searching for a low-risk investment with a steady growth rate and high dividend should strongly consider making Emera a long-term core holding.
