Why Premium Brands Holdings Corp. Is up Over 3%

Premium Brands Holdings Corp. (TSX:PBH) is up over 3% following its Q4 2017 earnings release and dividend increase. What should you do now?

| More on:

Premium Brands Holdings Corp. (TSX:PBH), one of North America’s leading manufacturers and distributors of branded specialty food products, announced its fiscal 2017 fourth-quarter and full-year earnings results and a dividend increase this morning, and its stock has responded by rising over 3% in early trading. Let’s break down the earnings results, the dividend increase, and the fundamentals of its stock to determine if we should be long-term buyers today.

The results that pleased the market

Here’s a quick breakdown of five of the most notable financial statistics from Premium Brands’s 13-week period ended December 30, 2017, compared with its 14-week period ended December 31, 2016:

Metric Q4 2017 Q4 2016 Change
Revenue $585.4 million $532.6 million 9.9%
Gross profit $108.1 million $104.6 million 3.3%
Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) $47.3 million $45.6 million 3.7%
Adjusted earnings $18.5 million $21.0 million (11.9%)
Adjusted earnings per share (EPS) $0.62 $0.71 (12.7%)

And here’s a quick breakdown of six notable statistics from Premium Brands’s 52-week period ended December 30, 2017, compared with its 53-week period ended December 31, 2016:

Metric Fiscal 2017 Fiscal 2016 Change
Revenue $2,198.3 million $1,857.5 million 18.3%
Gross profit $418.6 million $350.8 million 19.3%
Adjusted EBITDA $190.2 million $154.8 million 22.9%
Adjusted earnings $85.3 million $71.2 million 19.8%
Adjusted EPS $2.86 $2.46 16.3%
Free cash flow $131.3 million $121.5 million 8.1%

Rewarding its shareholders

In the press release, Premium Brands announced a 13.1% increase to its quarterly dividend to $0.475 per share, and the first payment at this increased rate will come on April 16.

Another important announcement

In the press release, Premium Brands also announced four acquisitions for a total cost of approximately $227 million. The combined sales of the four companies is approximately $266.5 million, and all four transactions are “expected to be on an individual basis accretive to the company’s 2018 earnings.”

What should you do now?

The fourth quarter capped off a phenomenal year for Premium Brands, in which it achieved double-digit percentage growth across all of its key financial metrics, and the dividend hike was icing on the cake, so I think the +3% pop in its stock is warranted; furthermore, I would still buy the stock today for two fundamental reasons.

First, it trades at attractive valuations. After the +3% pop, Premium Brands’s stock trades at 38.4 times its adjusted EPS of $2.86 for fiscal 2017, which may seem steep, but it trades at just 25.7 times the consensus EPS estimate of $4.28 for fiscal 2018, which is very inexpensive given its current earnings-growth rate and its long-term growth potential given its ongoing acquisition activity.

Second, it’s a dividend aristocrat. Premium Brands now pays an annual dividend of $1.90 per share, which brings its yield up to about 1.7%. A 1.7% yield isn’t incredibly high, but it’s very important to note that the dividend hike it just announced puts it on track for 2018 to mark the sixth straight year in which it has raised its annual dividend payment, making it one of the industry’s best dividend-growth stocks.

With all of the information provided above in mind, I think Foolish investors should consider initiating small positions in Premium Brands today with the intention of adding to those positions on any significant pullback in the weeks ahead.

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 any of the stocks mentioned.

More on Dividend Stocks

Paper Canadian currency of various denominations
Dividend Stocks

Should You Buy the 3 Highest-Paying Dividend Stocks in Canada?

A few dividend stocks saw a sharp correction in November, increasing their yields. Are they a buy for high dividends?

Read more »

money while you sleep
Dividend Stocks

Buy These 2 High-Yield Dividend Stocks Today and Sleep Soundly for a Decade

These stocks pay attractive dividends that should continue to grow.

Read more »

Pile of Canadian dollar bills in various denominations
Dividend Stocks

$15,000 Windfall? This Dividend Stock Is the Perfect Buy for Monthly Passive Income

If you get a windfall, after debt investing should be your next top option to create even more passive income!

Read more »

senior relaxes in hammock with e-book
Dividend Stocks

3 Canadian Dividend Stocks for Worry-Free Income

These Canadian stocks have consistently paid dividends, generating a worry-free passive income for investors.

Read more »

people relax on mountain ledge
Dividend Stocks

Invest $10,000 in This Dividend Stock for a Potential $4,781.70 in Total Returns

A dividend stock doesn't have to be risky, or without growth. And in the case of this one, the growth…

Read more »

ETF chart stocks
Dividend Stocks

2 Top TSX ETFs to Buy and Hold in a TFSA Forever

Don't get crazy. Just think simple growth with these two ETFs that are perfect in any TFSA.

Read more »

ETF stands for Exchange Traded Fund
Dividend Stocks

How to Use Your TFSA to Earn $900 Per Month in Tax-Free Income

This covered call ETF plus a TFSA could be your ticket to high tax-free passive income.

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

How to Turn a $15,000 TFSA Into $171,000

$15,000 may not seem like a lot, but over time that amount can balloon into serious cash.

Read more »