Power Corp of Canada 2

I do not own this stock of Power Corp of Canada (TSX-POW, OTC- PWCDF). I started following this stock because it was on the Dividend Achievers, the Dividend Aristocrats lists and also on Mike Higgs' list. I would not buy it because I have shares in Power Financial, which this company controls.

When I look at insider trading, I find $10.5M of insider selling and $10.5M of net insider selling. There is a very small amount of insider buying. This is only 0.07% of the market cap of this stock. There are not only stock options but there are other stock options type vehicles called Performance Deferred Share Units, Deferred Share Units and Performance Share Units.

No matter how you look at stock options for the two new Co-CEO, Co-Chairman of Andre and Paul Jr. they have been given a lot of stock options worth a lot of money. They stock options alone are worth around 1% of the market cap of this stock. Considering that the market cap for this company is over $13B, this is a lot of money.

Although the Desmarais family still has around $1.5B of subordinate shares in this company, they have been selling off shares. See link below. The Desmarais family also owns all the outstanding multiple voting shares (10 votes per share).

In 2013 the outstanding shares were increased by 254,915 for stock options which had a book value of $7M and this number of shares was worth $8.1M at the end of 2013. These options are 0.06% of the outstanding shares and are a relatively small number.

One thing that I should have pointed out but forgot to yesterday was that the Intangible and Goodwill assets under this company were equal to 99% of the company's market cap. This is not a good thing. When the Intangible and Goodwill assets reach over 100% of the market cap, they are often written off. So this is a cautionary note. (Note that the Intangible and Goodwill assets were at 127.20% and 118.37% of market cap in 2011 and 2012 and they were not written off. However, this is still a cautionary note.)

The 5 year low, median and high median Price/Earnings per Share Ratio are 12.18, 13.93 and 15.29. The current P/E Ratio is 11.18. (Note that the 10 year median low P/E Ratio is 11.23.) This ratio is based on a stock price of $29.64 and 2014 earnings estimate of $2.65. This stock price test suggests that the stock price is relatively cheap.

I get a Graham Price of $37.05. The 10 year low, median and high median Price/Graham Price Ratios are 0.82, 0.98 and 1.17. The current P/GP Ratio is 0.80 based on a stock price of $29.64. This stock price test suggests that the stock price is relatively cheap.

The 10 year Price/Book Value per Share Ratio is 1.82 and the current P/B Ratio is 29% lower at 1.29. This stock price test suggests that the stock price is relatively cheap.

The 5 year median dividend yield is 4.61% and this is some 15% higher than the current dividend yield of 3.91%. This stock price test suggests that the stock price is relatively reasonable, but towards the right end of the reasonableness range. That is towards the expensive end of the range.

The historical average dividend yield is 3.13% a value 25% lower than the current dividend yield of 3.91% and this suggests that the stock price is relatively cheap. The historical median dividend yield is 2.25% a value some 73% below the current dividend yield and this suggests that the stock price is relatively cheap.

Note that the historical high dividend yield is 4.62%, which is a value above the current dividend yield so on an historical basis, the stock has been cheaper. I also want to point out that these historical highs in dividend yield have all been made since 2008 when we have the last economic crisis. Dividend yields peaked in 2009 and since have been travelling south.

The analysts' recommendations are either a Buy or a Hold. The vast majority of the recommendations are a buy and the consensus recommendation would be a Buy. The 12 month consensus stock price is $34.80. This implies a total return of 21.32% with 3.91% from dividends and 17.41% with capital gains.

In January of 2014 there is an article in the Financial Post talking about the Desmarais family disposing of a major block of shares in Power Corp. This is the third sale by this family in the last 6 years. Looking at an article talking about the technical analysis of this stock, Lou Schizas at the Globe and Mail says that the two year bull market for this stock may be at an end. Recently Michael Ugulini at the Motley Fool has given this stock some praise.

I will not be buying this stock for the simple reason that I hold Power Financial Corp (TSXPWF) stock. From my analysis, it would seem that the stock price is cheap. See my spreadsheet at pow.htm.

This is the second of two parts. The first part was posted on Thursday, June 19, 2014 and is available here. The first part talks about the stock and the second part talks about the stock price.

Power Corporation of Canada is a diversified international management and holding company with interests in companies in the financial services, communications and other business sectors in North America, Europe and Asia. Some of it subsidiary companies include Power Financial, the Pargesa group and Gesca and Square Victoria Digital Properties. Its web site is here Power Corp.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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