Buy Stella-Jones’ more affordable shares

The Investment Reporter, MPL Communications Inc.
133 Richmond St.W., Toronto, ON, M5H 3M8. 1-800-804-8846

 

Stella-Jones’ four-for-one stock split makes its share more affordable. With another acquisition, the company’s earnings per share should keep growing quickly. The shares remain on a buy for long-term price gains and dividends that increase every year.

Stella-Jones has split its stock four-for-one. This benefits individual investors. The company also made another acquisition that should fuel its earnings-per-share growth. The shares remain a buy for long-term gains and dividends that rise each year.

Stella-Jones’ four-for-one stock split assists individual investors. Its pre-split price is now $115.88 a share. This would make a board lot of 100 shares cost $11,588—out-of-reach for investors temporarily short of cash. A board lot of $2,897 is more affordable, especially as a gift to a child or grandchild.

Stella-Jones’ stock split has no tax consequences for Canadian residents. And it maintains the existing shareholders’ ownership. All shareholders have four times as many shares as they held previously.

Stella-Jones is expanding in the U.S.

Stella-Jones is set to complete another acquisition in November. It has agreed to buy Arizona Pacific Wood Preserving, Nevada Wood Preserving and Pacific Wood Preserving. As their names suggest, they  operate wood-treating facilities in the sates of Arizona, Nevada and Oregon. Stella-Jones will also buy their wood concentration yard in Texas.

This acquisition will raise Stella-Jones’ presence in its core businesses of supplying railway ties and utility poles. President and chief executive officer Brian McManus says, “The acquisition of these facilities will further enhance Stella-Jones’ offerings and expand its capability to supply the needs of North America’s railroad and utility pole industries.” Telecommunications companies need fewer poles these days. But poles are needed to distribute electricity.

Stella-Jones will pay US$33 million plus the sellers’ net working capital of $24 million when the acquisition closes. The company will finance the purchase with loans and a vendor note of US$7 million.

In the year to October 31, 2012, the businesses generated sales of US$52.4 million. As Stella-Jones integrates them, they should increase the profits. It also lets the company offer one-stop shopping. With facilities across North America, Stella-Jones can serve its customers no matter where they operate.

In 2013, Stella-Jones is expected to earn $1.35 a share. That’s up by 19.5 per cent from $1.13 a share last year. More important, in 2014 the company’s earnings are expected to rise by 17.8 per cent, to $1.59 a share. Based on this estimate, the shares trade at a price-to-earnings ratio of 18.2 times. That’s not cheap, but it seems reasonable given Stella-Jones’ fast earnings per share growth in recent years.

STELLA-JONES $28.97 (Quality rating: Average; Sector: Consumer; TSX—SJ; T: 514-940-3903; www.stella-Jones.com) remains a buy, mostly for long-term price gains. Its dividends yield little. Still, this ‘dividend aristocrat’ raises your dividend each year.

 

The Investment Reporter, MPL Communications Inc.
133 Richmond St.W., Toronto, ON, M5H 3M8. 1-800-804-8846

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