I do not own this stock of Exchange Income Corp (TSX-EIF, OTC-EIFZF). One of my blogger readers suggested this stock as one to review. There was an interesting article about this stock in the G&M in May 2013. This article suggested that the company had a hefty yield with an acquisition tailwind. This article is now behind a paywall.
When I was updating my spreadsheet, I noticed that lower income was due to lower revenue in their aerospace and Aviation section. They did have an impairment loss but that made little difference. However, EPS has been volatile since this company went public in 2004.
The dividend yields are good with dividend growth low. The current dividend yield is good (5% - 6% ranges) at 5.24%. The 5 year median dividend yield is also good at 6.16%. The 10 and historical median dividend yields are high (7% and higher) at 7.10% and 7.43%. The dividend growth is low (below 8%) at 4.84% per year over the past 5 years. The last dividend increase was in 2019 and it was an 4% increase. Analyst expect the dividends will again be increased in 2022.
The Dividend Payout Ratios (DPR) need improving and analysts expect this to happen. The DPR for EPS for 2020 is 292% with 5 year coverage at 109%. Analysts do not expect this DPR to be lower than 100% until 2022. The DPR for CFPS for 2020 is 36.5% with 5 year coverage at 34%. The DPR for Free Cash Flow for 2020 is 64% with 5 year coverage at 62%. For FCF, Morningstar agrees with the company, but Market Screener has FCF values higher.
Debt Ratios could be improved. The Long Term Debt/Market Cap Ratio is 0.61. Some analysts like this below 0.50 and some say up to 1.00 is fine. The Liquidity Ratio is good at 2.10. The Debt Ratio is low at 1.43, but it has always been low. I prefer it to be at 1.50 or higher. The Leverage and Debt/Equity Ratios are too high at 3.34 and 2.34. I prefer these at less than 3.00 and less than 2.00.
The Total Return per year is shown below for years of 5 to 17 to the end of 2020. 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 chart below.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2015 | 5 | 4.84% | 11.97% | 5.15% | 6.83% |
| 2010 | 10 | 3.87% | 15.56% | 7.64% | 7.92% |
| 2005 | 15 | 5.37% | 18.79% | 8.69% | 10.11% |
| 2003 | 17 | 9.42% | 34.79% | 14.53% | 20.26% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 11.60, 15.07 and 18.54. The corresponding 10 year ratios are 13.57, 16.76 and 21.13. The corresponding historical ratios are 12.04, 15.17 and 18.41. The current P/E Ratio is 23.00 based on a stock price of $43.47 and EPS estimate for 2021 of $1.89. The current ratio is above the high 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
I get a Graham Price of $28.44. The 10 year low, median, and high median Price/Graham Price Ratios are 0.87, 1.18 and 1.43. The current P/GP Ratio is 1.53 based on a stock price of $43.47. The current ratio is above the high 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
I get a 10 year median Price/Book Value per Share Ratio of 1.74. The current P/B Ratio is 2.29 based on a stock price of $43.47, Book Value of $751M and Book Value per Share of $19.02. The current ratio is 31% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
I get a 10 year median Price/Cash Flow per Share Ratio of 5.91. The current P/CF Ratio is 6.48 based on a stock price of $43.47, Cash Flow per Share estimate for 2021 of $6.71, and Cash Flow of $254M. The current ratio is 10% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get an historical median dividend yield of 7.43%. The current dividend yield is 5.24% based on dividends of $2.28 and a stock price of $43.47. The current dividend yield is 29% above the historical median dividend yield. This stock price testing suggests that the stock price is relatively expensive.
I get a 10 year median dividend yield of 7.10%. The current dividend yield is 5.24% based on dividends of $2.28 and a stock price of $43.47. The current dividend yield is 26% above the historical median dividend yield. This stock price testing suggests that the stock price is relatively expensive.
The 10 year median Price/Sales (Revenue) Ratio is 0.97. The current P/S Ratio is 1.23 based on Revenue estimate for 2021 of $1336M, Revenue per Share of $35.27 and a stock price of $43.47. The current ratio is 27% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
To bring the current P/S Ratio testing to show a reasonable price, but still above the median (at 11% over the median) the stock price would have to be at least $38.00. This is a 12.6% decline in the stock price. To bring the current P/S Ratio to show a value below the 10 year median ratio, the stock price would have to be at least to 34.00. This is a 22% decline in stock price.
Results of stock price testing is that the stock price is seems to be expensive. The dividend yield tests show this as does the P/S Ratio test. The current price does not pass with the 10 year median yield test, so it does not matter that the company used to be an income trust. Most of the test results in the stock price being relatively expensive.
Is it a good company at a reasonable price? At the present time, I think that the stock price is on the expensive side. It is a good company and they have done well for their shareholders over time. I do think that they need to get the DPR for EPS to a better number but a lot of old income trust companies are having a hard time doing this. It is into aviation, so earnings will probably for volatile, and this makes this stock on the risky side.
When I look at analysts’ recommendations, I find Strong Buy (3), Buy (5), and Hold (2). The consensus would be a Buy. The 12 month stock price consensus is $49.40. This implies a total return of 18.89% with 13.64% from capital gains and 5.24% from dividends.
The most recent analysts’ recommendations on this company on Stock Chase are buys. Amy Legate-Wolfe on Motley Fool says this is a good stock to buy in a economic recovery. The executive summary on Simply Wall Street gives this stock 4 stars out of 5 and list 3 risks. A writer on Simply Wall Street talks about the dividend not being well covered by earnings. A writer on Simply Wall Street talks about the low coverage of EBITDA to interest expense.
Exchange Income Corp is a diversified acquisition-oriented corporation focused on opportunities in two sectors, aerospace, aviation services and equipment, and manufacturing. Its web site is here Exchange Income Corp .
The last stock I wrote about was about was Alimentation Couche-Tard Inc (TSX-ATD.B, OTC-ANCUF) ... learn more. The next stock I will write about will be ATCO Ltd (TSX-ACO.X, OTC-ACLLF) ... learn more on Wednesday, August 25, 2021 around 5 pm. Tomorrow on my other blog I will write about Quality of a Sell Decision.... learn more on Tuesday, August 24, 2021 around 5 pm.
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in the return over time table, the dividend and capital gains columns don't add to total return; dividends incorrect?
ReplyDeleteYou are correct. I have fixed the table.
ReplyDelete