I do not own this stock of Morneau Shepell Inc. (TSX-MSI, OTC-MSIXF). Every once in a while, I go through the stocks that my brokerage, TD Waterhouse, is recommending to find promising new stocks. In February 2013 this stock was rated a buy by TD Waterhouse. It was under Diversified Financials.
This company used to be an income trust and this explains the lack of any dividend increases. They will probably do this once the Dividend Payout Ratio is lower. Revenue, Earnings and Cash Flow have been rising over the past couple of years.
The dividend yield used to be high because this was an income trust. It has been falling since a peak in 2010 and is currently at a moderate rate of 2.87%. The 5, 10 and historical yields are much higher at 4.87%, 6.10% and 6.59%.
Currently they cannot afford their dividends. The Dividend Payout Ratio for 2017 was 126% with 5 year coverage at 181%. The DPR for CFPS for 2017 is much better at 37% with 5 year coverage at 43%. They have kept their dividends flat since 2013. Analyst do not believe that the dividend is in any danger of being cut. They also think that they will cover the dividends with earnings this year.
Generally speaking, the debt ratios are good. The Long Term Debt/Market Cap is low at 0.15. The Liquidity Ratio and Debt Ratios are both good at 1.67 and 1.80 respectively. The Leverage and Debt/Equity Ratios are 2.24 and 1.24 respectively. These are fine.
The Total Return per year is show below for years of 5 to 13. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See charts below.
There has not been much movement on the dividend growth side, but Total Return has been fine. Expect the dividend part of the Total Return to decline because this company is no longer an income trust.
| Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|
| 5 | 0.00% | 16.93% | 11.92% | 5.01% |
| 10 | -0.62% | 9.16% | 4.29% | 4.87% |
| 13 | -0.52% | 11.93% | 6.36% | 5.56% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 29.68, 34.66 and 41.45. The 10 year corresponding ratios are 27.73, 32.94 and 36.07. The historical ones are 27.59, 31.22 and 34.25. These are all very high. The current P/E Ratio is 28.30 based on a current stock price of $27.50 and 2018 EPS estimate of $0.96. This stock price testing suggests that the stock price is relative reasonable and below the median.
I get a Graham Price of $11.87. The 10 year low, median, and high median Price/Graham Price Ratios are 1.52, 1.67 and 2.03. The current P/GP Ratio is 2.32 based on a stock price of $27.50. This stock price testing suggests that the stock price is relatively expensive.
I get a 10 year median Price/Book Value per Share of 1.84. The current P/B Ratio is 4.22 based on Book Value of $362M, Book Value per Share of $6.52 and a stock price of $27.50. This stock price testing suggests that the stock price is relatively expensive.
I get an adjusted historical median dividend yield of 5.44%. The current dividend yield is 2.84% based on dividends of $0.78 and a stock price of $27.50. The current yield is some 48% below the adjusted historical dividend yield. This stock price testing suggests that the stock price is relatively expansive.
The 10 year median Price/Sales (Revenue) Ratio is 1.41. The current P/S Ratio is 2.27 based on 2018 Revenue estimate of $674M, Revenue per Share of $12.12 and a stock price of $27.50. The current P/S Ratio is some 60% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expansive.
The main reason that the Graham Price is so low is that the Book Value per Share is going down. A falling Book Value Per Share is not good. In this case it is falling because the profit for the year cannot cover the dividends paid. The falling book value is also the reason the stock is showing as expensive in the P/B Ratio Test. Both the P/GP Ratio and P/B Ratio tests show this stock as expensive and with good reason.
The P/E Ratios on this stock are quite high. However, they have always been quite high from when this stock went on the TSX in 2005. So, I wonder about the validity of this stock price test. Under the P/S Ratio test, this stock is also showing as expensive. The stock price is rising faster than the Revenue. This is the reason that the stock passes the P/E Ratio test and not the P/S Ratio test.
On one hand, the stock price shows where the market is thinking this stock will go and most tests I do show current values and where analysts think the stock will be in the current year. However, I am inclined to think that the stock price is getting into the expensive range. The market does tend to under and over price things.
When I look at analysts’ recommendations I find Buy (4) and Hold (2). The consensus recommendation would be a Buy. The 12 month stock price is $26.38. This implies a loss of 1.20% with a capital loss of $4.07% and dividends at 2.87%.
A staff member on Benefits Canada talk about this company’s acquisition of LifeWorks Corp Ltd. Ricardo Landis on Simply Wall Street says the company is selling at a fair valuation. Caroline Biscotti on Brookville Times says the Q.I Value of this stock is 32 which points to it being neither under or overvalued when undervalued is 1 and overvalued is 100. See what analysts are saying about this company on Stock Chase. This like this company and feel it is well-managed.
Morneau Shepell Inc and its subsidiaries provides health and productivity, administrative and retirement solutions to assist employers in managing the financial security, health, and productivity of their employees. Its web site is here Morneau Shepell Inc.
The last stock I wrote about was about was Empire Company Ltd (TSX-EMP.A, OTC- EMLAF) ... learn more. The next stock I will write about will be Inter Pipeline Ltd (TSX-IPL, OTC-IPPLF) ... learn more on Friday, July 13, 2018 around 5 pm. Tomorrow on my other blog I will write about Another Source of Income.... learn more on Thursday, July 12, 2018 around 5 pm.
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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