Is Finning International (TSE:FTT) a Strong Buy in 2026 Amid Favorable Earnings Growth and Dividend Stability?

Finning International (TSE:FTT) has long been a cornerstone of the capital goods sector, balancing robust earnings growth with disciplined dividend management. As 2026 approaches, investors are scrutinizing whether the company's recent performance and valuation metrics align with value and growth investment criteria. Drawing on 2024 and Q3 2025 financial data, this analysis evaluates FTT's potential as a "strong buy" by examining its EPS trajectory, dividend sustainability, insider activity, and valuation relative to intrinsic value, while addressing risks such as volatility and market expectations.

Earnings Growth: A Foundation for Value and Growth Alignment

Finning's earnings per share (EPS) growth has been a standout metric in recent years. For 2024, the company reported a full-year EPS of $3.62, surpassing analyst estimates by 5.8%. This momentum continued into Q3 2025, where EPS surged 33% year-over-year to $1.17, driven by strong demand in mining and power systems. Such growth underscores Finning's ability to capitalize on sector-specific tailwinds while maintaining operational efficiency.

The company's revenue expansion further reinforces this narrative. In Q3 2025, revenue hit $2.84 billion, a 14% increase compared to the same period in 2024. This outperformance, coupled with an 8.5% EBIT margin, highlights Finning's resilience in a competitive market. For value investors, these metrics suggest a business generating consistent cash flow, while growth-oriented investors see potential in its ability to scale operations.

Dividend Stability: A Pillar of Shareholder Trust

Finning's dividend policy has historically balanced reward and prudence. In 2024, the company maintained a payout ratio of 26.7%, distributing $1.18 per share to shareholders. By Q3 2025, the payout ratio had slightly increased to 27%, with a quarterly dividend of $0.3025 per share. This consistency signals a commitment to returning value to shareholders without overleveraging the business.

Notably, Finning's dividend growth aligns with its earnings trajectory. The 2024 dividend per share of $1.18 represented a 7% increase from prior years, mirroring the EPS growth observed in Q4 2024. For income-focused investors, this synchronization between earnings and dividends reduces the risk of unsustainable payouts, a critical factor in long-term portfolio stability.

Insider Buying: A Vote of Confidence

Insider transactions often serve as a barometer of corporate confidence. In Q4 2024, senior officers-including Saldanha, Primrose, and Hogg- engaged in strategic share purchases. For instance, Saldanha acquired shares at prices ranging from $35.54 to $53.13 per share, while also selling portions of her holdings. These actions suggest a nuanced approach to capital allocation, with insiders leveraging market opportunities to bolster their stake in the company.

Such activity is particularly significant in the context of Finning's 2025 share buyback program, which saw the repurchase of 1.43 million shares for $110.69 million. By aligning executive incentives with shareholder interests, these moves reinforce trust in management's long-term vision.

Valuation Metrics: Undervaluation or Overvaluation?

Finning's valuation presents a nuanced picture. As of early 2026, the stock trades at a P/E ratio of 17.1x, below both the peer average (20.1x) and industry average (21.2x). This suggests the stock is attractively priced relative to earnings, a hallmark of value investing. However, intrinsic value estimates complicate this narrative.

Using a discounted cash flow (DCF) model, Finning's intrinsic value under the Base Case scenario is estimated at $62.57 CAD, while its current market price of $76.26 CAD implies an 18% overvaluation. Conversely, some analysts project a fair value of $57.65 CAD, further widening the gap. This discrepancy highlights the tension between growth expectations and current pricing.

Despite these valuation challenges, analyst sentiment remains cautiously optimistic. Eight Wall Street analysts have assigned a "Buy" rating to FTT, with an average 12-month price target of $86.13, implying a 13.69% upside from the current price. This optimism is partly fueled by expectations of continued EPS growth, which is projected to rise from $4.24 in 2025 to $4.67 in 2026.

Risks and Volatility: A Cautionary Lens

While Finning's fundamentals are compelling, investors must weigh risks. The stock's beta of 1.35 indicates higher volatility than the broader market, a factor amplified by its 52-week price range of $34.59 to $79.68. This volatility could deter risk-averse investors, particularly if macroeconomic conditions deteriorate.

Additionally, the company's debt levels, though manageable, pose a potential headwind. Operating cash flow does not fully cover debt obligations, a factor that could constrain flexibility during downturns. Analysts also note that Finning's earnings growth is expected to lag behind the Canadian market, tempering long-term optimism.

Conclusion: A Strong Buy with Caveats

Finning International's alignment with value and growth criteria is evident in its consistent EPS growth, sustainable dividend policy, and insider confidence. While valuation metrics present mixed signals-suggesting overvaluation in some models and undervaluation in others-the company's operational strength and analyst optimism tilt the scales in favor of a "strong buy" recommendation for 2026.

However, investors should remain cognizant of volatility and debt-related risks. For those with a medium-term horizon and a tolerance for sector-specific fluctuations, FTT offers an attractive combination of income generation and growth potential. As the company executes its share buyback program and navigates sector tailwinds, its ability to close the valuation gap between intrinsic value and market price will be critical to unlocking long-term shareholder value.