Today, in terms of earnings releases for Canadian stocks, Enerplus Corp. (ERF-T), Husky Energy Inc. (HSE-T), Magna International Inc. (MG-T), Onex Corp. (ONEX-T) and Royal Bank of Canada (RY-T) are all scheduled to release their quarterly results.
Canadian January inflation figures will also be released. In the U.S., January new home sales and consumer sentiment data will be reported.
The positive market momentum may pause ahead of U.S. president Donald Trump's address to a joint session of Congress on Tuesday Feb. 28. His speech next week may result in a major market move.
This morning, key commodity prices are mixed. The price of oil is down slightly, hovering around the $54 (U.S.) level. The price of natural gas futures continue to recover, climbing higher but by less than 1 per cent. Finally, the price of gold is up around half a per cent.
Briefly recapping Thursday's stock market returns, major North American stock markets had mixed returns.
In the U.S., the Dow Jones Industrial Average increased 0.17 per cent, the S&P 500 index advanced 0.04 per cent, while the Nasdaq composite index slipped 0.43 per cent.
Turning to Canada, the S&P/TSX composite index declined 49 points, or 0.31 per cent. There were 111 securities in the TSX Index that advanced, 134 securities declined in value, and four stocks closed the day unchanged.
The TSX Index is up 3.23 per cent year-to-date.
On today's TSX Breakouts report, there are 43 stocks on the positive breakouts list (stocks with positive price momentum), and 20 stocks are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a company that appears on the negative breakouts list. The company offers investors a yield of 4.3 per cent and management is firmly committed to its dividend, raising it for 22 consecutive years. The upcoming merger with Spectra Energy Corp. is expected to be completed next week making the company a leading North American energy infrastructure company. The company highlighted today Enbridge Inc. (ENB-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Calgary-based Enbridge is an energy infrastructure company offering regulated gas distribution, and has an extensive network of crude oil, liquids, and natural gas pipelines.
The proposed merger between Enbridge and Spectra Energy Corp. is anticipated to be completed next week, on Feb. 27. The combined company will feature a low-risk business model with 96 per cent of the company's cash flows generated from long term take-or-pay, cost-of-service, or fee-based contracts resulting in predictable cash flows.
Before the market opened on Feb. 17, Enbridge reported fourth-quarter financial results that were relatively in-line with expectations. Adjusted earnings before interest and taxes (EBIT) came in at $1.198-billion, just shy of the consensus estimate of $1.206-billion. Available cash flow from operations (ACFFO) came in at 95 cents per share in the fourth-quarter and at $4.08 for 2016.
The company is dual-listed, trading on both the Toronto Stock Exchange and the New York Stock Exchange under the same ticker, ENB.
Dividend policy
The company pays its shareholders a quarterly dividend of 58.3 cents per share, or $2.332 per share on a yearly basis. This equates to an annualized dividend yield of 4.3 per cent.
Management is firmly committed to returning capital to shareholders. The company has increased the dividend for 22 consecutive years. Last month, management announced a 10-per-cent dividend hike, raising the quarterly dividend to its present level of 58.3 cents per share from 53 cents per share. The anticipated merger with Spectra Energy is expected to lead to annual dividend increases, during which time the dividend payout ratio is expected to be between 50 per cent and 60 per cent.
In the fourth-quarter earnings release, Al Monaco, the president and chief executive officer stated, "Delivering consistent and dependable dividend growth is core to our shareholder value proposition and is a direct reflection of our low-risk business model, which is designed to perform well in all market conditions. The combination with Spectra Energy will allow for a top up of our dividend in 2017, post-closing, and importantly, is expected to drive ongoing dividend growth in the range of 10 per cent to 12 per cent per annum through 2024."
Financial forecasts
The Street is forecasting solid growth for the company. The consensus EBIT estimate is $7.88-billion in 2017, up from $4.66-billion in 2016. The consensus EBIT estimate is $8.94-billion in 2018.
Over the past five months, forecasts have been relatively stable with minor negative revisions. In September 2016, the consensus EBIT estimates were $8.3-billion for 2017 and $9.0-billion for 2018.
Valuation
Analysts' valuation methods vary with several analysts valuing the stock using a discounted cash flow model. The consensus one-year target price is $63.91, suggesting a potential price return of 17 per cent over the next 12 months. Target prices range from a low of $58 (at Peters & Co.) to a high of $71 (at CIBC World Markets). Individual target prices provided by nine firms are as follows in numerical order: $58, $62, $63, $64, two at $66, two at $67, and $71.This implies upside potential of between 6 per cent and 30 per cent over the next year.
Analysts' recommendations
Since the beginning of the month, 11 analysts have issued recommendations on the company, nine analysts have "buy" recommendations and two analysts have "hold" recommendations.
The 11 firms providing recent research coverage are as follows in alphabetical order: Canaccord Genuity, CIBC World Markets, Edward Jones, GMP, Morningstar, National Bank Financial, Peters & Co. Ltd., RBC Capital Markets, Scotia Capital, TD Securities and Veritas Investment Research. BMO Capital Markets also covers the company but is currently restricted on the stock.
Revised recommendations
In February, a number of analysts tweaked their target prices. Let's begin with the positive revisions. Linda Ezergailis, the analyst at TD Securities, raised her target price to $64 from $62. Robert Hope from Scotia Capital lifted his target price by $1 to $62. Ian Gillies from GMP increased his target price to $66 from $64. Patrick Kenny from National Bank Financial bumped his target price by $1 to $67.
On the downside, Robert Kwan, the analyst at RBC Capital Markets, reduced his target price to $67 from $69, and Tyler Reardon from Peters & Co. trimmed his target price to $58 from $60.
Chart watch
The stock price has been under pressure in recent weeks. Year-to-date, the share price is down 3.1 per cent, underperforming most of its sub-sector peers. Over the past month, the stock price has declined nearly 6 per cent, tumbling from $58.09 on January 26 to a closing price of $54.74 on Thursday.
Also notable is the high trading volume experienced on Thursday. The share price fell 1 per cent on very high volume, over 19.8-million shares traded, well above the three-month historical daily average trading volume of 3.5-million shares.
Should the share price break below the $54 level, the stock price may continue to slide to between $50 and $52. On a potential recovery in the stock price, there is initial overhead resistance between $59 and $60, and after that between $65 and $66.
The relative strength index is at 39, suggesting that the shares are not yet in oversold territory despite the pullback in the stock price. Generally, a reading of 30 or lower represents an oversold condition.
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The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company's dividend policy, analysts' recommendations, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.