Is it a good company at a reasonable price? The stock price is relatively cheap. However, this stock is cheap for a reason. They are currently having some difficulties. They have too much debt and falling earnings. However, analysts feel that this will improve. The second quarter of 2023 did show improvements. The stock is cheap, and there are risks in buying it. If it improves as analysts think, new buyers could certainly benefit.
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, so I decided to investigate it. Site is Canada Stock Channel.
When I was updating my spreadsheet, I noticed they are doing much better in 2023. For example, the EPS for 2022 was $0.47. For the last 12 months, to the end of the second quarter, the EPS is $1.14. Analysts expect EPS for 2023 to be $1.05 and then $1.17 in 2024 and $1.45 in 2025.
This chart shows the growth for various items. The problem with cash flow is that it was negative for the last two years. EPS and Net Income tend to be volatile, so growth is hard to gauge.
| Year | Item | Tot. Growth | Per Year |
|---|---|---|---|
| 5 | Revenue Growth | 67.39% | 10.85% |
| 5 | EPS Growth | 4.17% | 0.82% |
| 5 | Net Income Growth | 7.83% | 1.52% |
| 5 | Cash Flow Growth | -157.17% | N/C |
| 5 | Cash Flow Less WC Growth | -8.45% | -1.75% |
| 5 | Dividend Growth | 48.98% | 8.30% |
| 5 | Stock Price Growth | -54.31% | -14.50% |
| 10 | Revenue Growth | 59.37% | 4.77% |
| 10 | EPS Growth | -65.99% | -10.22% |
| 10 | Net Income Growth | -61.04% | -9.00% |
| 10 | Cash Flow Growth | -263.86% | N/C |
| 10 | Cash Flow Less WC Growth | -6.28% | -0.65% |
| 10 | Dividend Growth | 180.77% | 10.88% |
| 10 | Stock Price Growth | -14.46% | -1.55% |
If you had invested in this company in December 2012, for $1,001.10 you would have bought 94 shares at $10.65 per share. In December 2022, after 10 years you would have received $477.99 in dividends. The stock would be worth $856.34. Your total return would have been $1,344.33. This is a total return would be 3.42% per year with 1.55% from capital loss and 4.97% from dividends.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $10.65 | $1,001.10 | 94 | 10 | $477.99 | $856.34 | $1,334.33 |
The current dividend yield is good with dividend growth moderate. The current dividend yield is good (5% to 6% ranges) at 6.81%. The 5, 10 and historical dividend growth is moderate (2% to 4% ranges) at3.61%, 2.91% and 2.31%. The dividend growth for the past 5 years is moderate (8% to 14% ranges) at 8.3% per year. The last dividend increase was lower at 5.7% and it occurred in 2022.
The Dividend Payout Ratios (DPR) for CFPS is fine and I think that is an important one. The DPR for 2022 for Earnings per Share (EPS) is 155% with 5 year coverage at 67%. Analysts expect the DPR for EPS for 2023 to be in the 70% range. The DPR for 2022 for Cash Flow per Share (CFPS) is 35% with 5 year coverage at 21%. The DPR for 2022 for Free Cash Flow is negative and the 5 year coverage is high at 344%. Analysts expect this DPR to improve over the next couple of years with the other problem being that none of the sites I looked at agree on what the FCF is, but seem to agree that it was negative in 2022.
| Item | Cur | 5 Years |
|---|---|---|
| EPS | 155.32% | 67.39% |
| CFPS | 35.39% | 21.02% |
| FCF | -24.35% | 344.47% |
There are problems with their Debt Ratios. The Long Term Debt/Market Cap Ratio for 2022 is good and low at 0.31 and 0.16 now. The Liquidity Ratio for 2022 is low at 1.27 and Cash Flow after dividends does not help this ratio. Liquidity is an important ratio. The Debt Ratios are also low at 1.37. Both the Liquidity and Debt Ratios should be at least at 1.50 for safety. The Leverage and Debt/Equity Ratios are too high at 3.74 and 2.74. I like them to be below 3.00 and 2.00.
| Type | Year End | Ratio Curr |
|---|---|---|
| Lg Term R | 0.31 | 0.16 |
| Intang/GW | 1.18 | 0.19 |
| Liquidity | 1.27 | 1.27 |
| Liq. + CF | 1.18 | 1.27 |
| Debt Ratio | 1.37 | 1.37 |
| Leverage | 3.74 | 3.72 |
| D/E Ratio | 2.74 | 2.72 |
The Total Return per year is shown below for years of 5 to 26 to the end of 2022. 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. |
|---|---|---|---|---|---|
| 2017 | 5 | 8.30% | -10.12% | -14.50% | 4.38% |
| 2012 | 10 | 10.88% | 3.42% | -1.55% | 4.97% |
| 2007 | 15 | 16.92% | -3.10% | -6.00% | 2.90% |
| 2002 | 20 | 17.30% | 6.99% | 3.31% | 3.68% |
| 1997 | 25 | 9.46% | 8.28% | 4.83% | 3.45% |
| 1996 | 26 | 6.70% | 3.69% | 3.01% |
The 5-year low, median, and high median Price/Earnings per Share Ratios are 12.26, 18.26 and 21.26. The corresponding 10 year ratios are 16.08, 19.74 and 23.53. The corresponding historical ratios are 9.41, 12.69 and 18.72. The current P/E Ratio is 10.35 based on a stock price of $10.87 and EPS estimate for 2023 of $1.05. The current ratio is below the low ratio of the 10 year median ratios. This stock price testing suggests that the stock price is relatively cheap.
I get a Graham Price of $19.06. The 10-year low, median, and high median Price/Graham Price Ratios are 0.84, 1.02 and 1.23. The current P/GP Ratio is 0.57 based on a stock price of $10.87. The current ratio is below the low ratio of the 10 year median ratios. This stock price testing suggests that the stock price is relatively cheap.
I get a 10-year median Price/Book Value per Share Ratio of 1.22. The current ratio is 0.71 based on a Book Value of $948.5M, Book Value per Share of $15.37 and a stock price of $10.87. The current ratio is 42% 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 5.23. The current P/CF Ratio is 9.13 based on a Cash Flow per Share estimate for 2023 of $1.19, Cash Flow of $73.4 and a stock price of $10.87. The current ratio is 75% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive. The problem with this test is that the last two years Cash Flow were negative and therefore gives a low P/CF ratio to test against.
I get an historical median dividend yield of 2.31%. The current dividend yield is 6.81% based on Dividends of $0.74 and a stock price of $10.87. The current dividend yield is 195% above the historical dividend yield. This stock price testing suggests that the stock price is relatively cheap.
I get a 10 year median dividend yield of 2.91%. The current dividend yield is 6.81% based on Dividends of $0.74 and a stock price of $10.87. The current dividend yield is 134% above the 10 year 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 0.14 based on Revenue estimate for 2023 of $4,770M, Revenue per Share of $77.32 and a stock price of $10.87. The current ratio is 51% 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 probably cheap. The dividend yield tests show this and it is confirmed by the P/S Ratio test. Most of the other tests are showing the same thing.
When I look at analysts’ recommendations, I find Strong Buy (2), Buy (5) and Hold (5). The consensus is Buy. The 12 month stock price is $13.73. This implies a total return of 33.12% with 26.31% from capital gains and 6.81% from dividends.
Most, but not all analysts on Stock Chase like this stock. What analyst think is negative is that they have lost money on some fixed priced contracts. It is on the Maple Money and Aristocrats lists, but not on the Money Sense list. Stock Chase gives this stock 5 stars out of 5. Aditya Raghunath on Motley Fool thinks this stock is a bargain at present. Brian Paradza on Motley Fool says the setback for this company is temporary. The company put out a Press Release on Newswire about their 2022 year end results. The company put out a Press Release on Newswire about their second quarter of 2023.
Simply Wall Street via Yahoo Finance. They have two warnings for this stock of high level of non-cash earnings; and dividend of 6.79% is not well covered. Simply Wall Street gives this stock 3 and one half stars out of 5.
Aecon Group Inc is a Canada-based company that operates in two segments: Construction and Concessions. The company generates most 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 Friday, August 18 2023 around 5 pm. Tomorrow on my other blog I will write about Investment Theory in Practice .... learn more on Thursday, August 17, 2023 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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