We regularly review Saint-Georges, Quebec-based Canam Group in The Investment Reporter. Since we published our June 5 issue, its shares have fallen by 13.7 per cent. The company’s outlook, however, is favorable and it may well behave over the next few years as a growth stock for capital gains—but with high income too. As a result, Canam Group is a growth stock to buy now for long-term share price gains as well as modest, rising, dividends–particularly while it’s cheap.
Canam (TSX─CAM) calls itself “the largest fabricator of steel components in North America. Specialized in designing construction solutions and fabricating customized products . . . Canam Group takes part in an average of 10,000 building, structural, steel and bridge projects each year.” It “operates 22 plants across North America and employs over 3,920 people in Canada, the United States, Romania, India and Hong Kong.”
On August 24, Canam Group won the largest contract in its history. This $225 million contract is for supplying the steel superstructure for the approaches to the new Champlain Bridge in Montreal. It’s also for fabricating steel components for the new l’Ile-des Soeurs Bridge. Canam will start the fabrication this autumn. It will make deliveries until the spring of 2018.
A growth stock company with rising income
This should significantly raise Canam’s profitability. In 2015, it’s expected to earn $1.08 a share. That would represent earnings per share growth of more than 54 per cent. Based on this estimate, the shares trade at an attractively-low forward price-to-earnings, or P/E, ratio of 11.9 times.
Next year, Canam’s earnings are expected to climb by 25 per cent, to $1.35 a share. Based on this estimate, the shares trade at an even better forward P/E ratio of just 9.5 times.
Another plus is that Canam’s shares trade only a little above their book value of $11.64 a share. But it also faces two minor drawbacks.
First, Canam has a net debt-to-cash-flow ratio of 3.7 times. That’s above our comfort zone of two times or less. Then again, its cash flow is likely to rise along with its profit. This should reduce the ratio to a safer level.
Second, Canam pays dividends of 16 cents a share. But that’s the same as it paid in 2010. In 2011, the company cut the dividend in half, to eight cents a share. In 2012, it eliminated the dividend altogether. On the positive side, as Canam’s earnings rise, it may raise its dividends too.
Canam is a growth stock to buy now for long-term share price gains and modest, rising, dividends. Buy it while it’s cheap.
The Investment Reporter, MPL Communications Inc.
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