Is it a good company at a reasonable price? The price is reasonable and is probably cheap. Just because it is cheap does not make it a good buy. Until recently, the company has produced total returns of at least 8% which is the acceptable level I look at. The CEO and CFO are buying shares. Directors are not.
I do not own this stock of Aecon Group Inc (TSX-ARE, OTC-AEGXF). This stock has been coming up on Canada Stock Channel Weekly email. Site is Canada Stock Channel.
When I was updating my spreadsheet, I noticed that there was a lot of insiders buying over the past year and not insider selling. Both the CEO and CFO increased the number of shares that they hold. I also noticed that the last dividend increase was for 5.7%, which is lower than the last 5 year average of 9% per year.
If you had invested in this company in December 2011, $1,004.16 you would have bought 96 shares at $10.46 per share. In December 2021, after 10 years you would have received $443.04 in dividends. The stock would be worth $1620.48. Your total return would have been $2,063.52.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $10.46 | $1,004.16 | 96 | 10 | $443.04 | $1,620.48 | $2,063.52 |
The current dividend yield is good with dividend growth moderate. The current dividend yield is good (5% to 6% ranges) at 6.55%. The 5, 10 and historical dividend yields are moderate (2% to 4% ranges) at 2.91%, 2.88% and 2.29%. The dividends have been increasing at a moderate rate (8% to 14% ranges) at 9% per year over the past 5 years. The last dividend increase was for 5.7% and it was done in 2022.
The Dividend Payout Ratios (DPR) need improving. The DPR for EPS for 2021 is 88% with 5 year coverage at 62%. The DPR is a bit too high. Analysts expect the DPR for 2022 to be around 59%. The DPR for Cash Flow per Share (CFPS) for 2022 is 24% with 5 year coverage at 19%. The CFPS DPR is good. The DPR for Free Cash Flow (FCF) cannot be calculated for 2021 because it is negative. The 5 year coverage is 72%. Analysts expect the FCF to be negative in 2022 also.
Debt Ratios could improve. The Long Term Debt/Market Cap is 0.51 and this is good. The Liquidity Ratio is 1.46. They had a negative cash flow in 2021, so adding in cash flow after dividends does not raise their ratio, but if you add in Cash Flow without Working Capital and Dividends, the ratio is 1.53. The Debt Ratio is low at 1.38. It has always been low and I prefer this to be 1.50. Leverage and Debt/Equity Ratio for 2021 is 3.60 and 2.60. These are also high and I prefer them to be below 3.00 and below 2.00.
The Total Return per year is shown below for years of 5 to 25 to the end of 2021. 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. |
|---|---|---|---|---|---|
| 2016 | 5 | 9.01% | 5.62% | 2.05% | 3.57% |
| 2011 | 10 | 13.10% | 8.31% | 4.90% | 3.41% |
| 2006 | 15 | 17.69% | 9.81% | 6.62% | 3.18% |
| 2001 | 20 | 9.10% | 9.32% | 6.95% | 2.37% |
| 1996 | 25 | 9.60% | 8.42% | 6.44% | 1.99% |
The 5-year low, median, and high median Price/Earnings per Share Ratios are 15.26, 18.26 and 21.26. The corresponding 10 year ratios are 15.15, 18.46 and 21.81. The corresponding historical ratios are 8.84, 12.65 and 18.51. The current P/E Ratio is 34.24 based on a stock price of $11.30 and EPS estimate for 2022 of $0.33. This ratio is above the high ratio of the 10 year median ratios. This stock price testing suggests that the stock price is relatively expensive.
EPS dropped by 40% in 2021 (from $1.29 to $0.78). Analysts expect another drop this year by 58% to $0.33. (Note that last 12 months EPS to the end of the second quarter, the EPS is $0.40.) For 2023 analysts expect EPS for 0.73. This gives us a P/E Ratio of 15.48. This ratio is between the low and median ratios for the 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a Graham Price of $10.47. The 10-year low, median, and high median Price/Graham Price Ratios are 0.84, 1.01 and 1.19. The current ratio is 1.08 based on a stock price of $11.30. The current ratio is between the median and high ratios of the 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable but above the median. (Note that the P/GP Ratio drops to 0.73 in 2023.)
I get a 10-year median Price/Book Value per Share Ratio of 1.22. The current P/B Ratio is 0.77 based on a Book Value of $900M, Book Value per Share of $14.77 and a stock price of $11.30. The current ratio is 37% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.
I get a 10-year median Price/Cash Flow per Share Ratio of 5.59. The current P/CF Ratio is 5.71 based on a stock price of $11.30, Cash Flow per Share estimate for 2022 of $1.98 and Cash Flow of $121M. The current ratio is 2% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median. (The CFPS estimate for 2023 is low at $1.86, but that still gives a stock price that is relatively reasonable but above the median.)
I get an historical median dividend yield of 2.29%. The current dividend yield is 6.55% based on dividends of $0.74 and a stock price of $11.30. The current dividend yield is 186% above the historical median dividend yield. This stock price testing suggests that the stock price is relatively cheap.
I get an historical median dividend yield of 2.88%. The current dividend yield is 6.55% based on dividends of $0.74 and a stock price of $11.30. The current dividend yield is 127% above the historical median dividend yield. This stock price testing suggests that the stock price is relatively cheap.
The 10-year median Price/Sales (Revenue) Ratio is 0.29. The current P/S Ratio is 0.15 based on Revenue estimate for 2022 of $4,473M, Revenue per Share of $73.38 and a stock price of $11.30. The current ratio is 47% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.
Results of stock price testing is that the stock price is relatively cheap. The dividend yield tests say that the stock price is relatively cheap. This is confirmed by the P/S Ratio test. Other tests say it is reasonable and above or below the median.
When I look at analysts’ recommendations, I find Strong Buy (1), Buy (2) and Hold (10). The consensus would be a Hold. The 12 month stock price is $14.23. This implies a total return of 32.48% with 25.93% from capital gains and 6.55% from dividends based on a stock price of $11.30. This consensus stock price and total return does not really match up with the analysts’ recommendations. The high and low values for the stock price are $20.00 and $17.00.
The last three analysts rated this company on Stock Chase Do Not Buy, Buy, and Hold. Stock Chase gives this stock 4 stars out of 5. Money Sense rates this company a B. Amy Legate-Wolfe on Motley Fool thinks that the company is no longer the solid long-term investment it once was. Kay Ng on Motley Fool says investors will need to be able to withstand greater volatility in holding this stock and bear the possibility of a dividend cut. The company put out a Press Release about its 2021 results. The company put out a Press Release on their second quarter 2022 results.
Simply Wall Street on Yahoo Finance has put out a rather negative report on this stock. Simply Wall Street also lists 3 warnings for this stock of dividend of 6.55% is not well covered by earnings or forecast to be in the next 3 years; large one-off items impacting financial results; and Profit margins (0.6%) are lower than last year (2.7%).
Aecon Group Inc is a Canada-based company that operates in two segments: Construction and Concessions. Aecon generates the majority of its revenue from the Construction segment. Its web site is here Aecon Group Inc .
The last stock I wrote about was about was GFL Environmental Inc (TSX-GFL, NYSE-GFL) ... learn more. The next stock I will write about will be Chemtrade Logistics Income Fund (TSX-CHE.UN, OTC-CGIFF) ... learn more on Monday, August 22, 2022 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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