Friday's TSX breakouts: A stock with record quarterly revenues and a 5% yield

On Thursday, the S&P/TSX composite index, once again, inched higher, gaining 32 points, or 0.22 per cent to close at 14,566, its highest level over the past year. Within the Index, 136 securities advanced,  96 stocks declined, and eight stocks finished the day unchanged from the previous day.

Month-to-date, the TSX Index is up a solid 3.56 per cent and year-to-date, the index is now up 11.96 per cent.

On today's Breakouts Report, there are 42 securities on the positive breakouts list (stocks with positive price momentum) and just five stocks, all small caps, on the negative breakouts list (stocks with negative price momentum).

Discussed today is a stock that appears on the positive breakouts list. The stock offers investors an attractive 5 per cent dividend yield and whose revenues are mainly from the government. Year-to-date, this stock has been a leader, rallying 35 per cent. The security I am referring to is Calian Group Ltd. (CGY-T).

A brief outline is provided below that may serve as a springboard for further fundamental research.

The Company

Calian is a technology stock that operates two core divisions. Its Business and Technology Services (BTS) division provides training services, health services, and IT services, and its second division, the Systems Engineering Division (SED), serves satellite communications manufacturers and operators, the aerospace and defence market, and telecommunications industries. The company serves both private and public sectors with a significant presence in the private sector. As indicated in the company's 2015 annual report, "The company's customers are for the most part, federal and provincial government departments and large private companies. A significant portion of the Company's accounts receivable is from long-time customers. At Sept. 30, 2015 (2014), 60 per cent (68 per cent) of its accounts receivable were due from the Government of Canada." For instance, a key customer is the Department of National Defence. In 2015, 62 per cent of the company's total revenues were from the Canadian federal government.

On May 4, the company reported second quarter fiscal 2016 financial results that were strong, reporting record quarterly revenues. The company reported revenues of  $68.1-million, up 12 per cent year-over-year. The BTS division reported revenues of $50.6-million, up 15 per cent year-over-year, and the SED segment reported revenues of $17.5-million, a 3 per cent increase compared to the previous year. Earnings before interest, taxes, depreciation and amortization (EBITDA) increased to $5.4-million from $4-million during the same quarter in the prior year. Adjusted earnings per share (EPS) was 48 cents, up from 34 cents last year. The company's backlog stood at $390-million as of March 31. The company's balance sheet is strong. The share price jumped 3.3 per cent that trading day.

Management's outlook is cautiously optimistic. In its recent Management's Discussion and Analysis, management stated that, "the marketplace for the near term will continue to be unsettled and very competitive and the timing of new contract awards is always subject to delay. Our backlog provides a reasonable level of revenue assurance on existing contracts and new opportunities continue to arise. Although we continue to focus our efforts on the diversification of our customer base outside of government, the nature and extent of future government spending remain uncertain and therefore, future revenues in this sector will ultimately be determined by customer demand on existing contracts as well as the timing of future contract awards."

Furthermore, management increased its earnings guidance. Revenues guidance was unchanged for fiscal 2016, expected to fall between $250-million and $280-million. However, adjusted EPS guidance was raised to between $1.59 and $1.89 in fiscal 2016, up from its previous guidance calling for EPS of between $1.49 to $1.79 range.

In fiscal 2015, the company reported revenues of $242-million, up 15 per cent year-over-year.

In the company's 2015 annual report, management noted that Calian's stock price was highly correlated with the S&P/TSX composite index.

Dividend Policy

The company pays shareholders a quarterly dividend of 28 cents per share or $1.12 on a yearly basis. This equates to an annualized yield of 5.1 per cent.  Management is committed to its dividend and have maintained the quarterly dividend at this level since 2012.

Valuation

The stock's valuation is getting rich, in other words, expensive. According to Bloomberg, the stock is trading at a price-to-earnings multiple of 12.6 times the fiscal 2017 consensus estimate, which is above its three-year historical average of 11 times.

Analysts' Recommendations

According to Bloomberg, there is just one firm that covers this stock, Desjardin Securities. The analyst has a buy recommendation and a one-year price target of $23, suggesting the positive price momentum may begin to stall, with just 4 per cent additional upside potential.

The analyst has a stable earnings forecast for the company. His revenue forecast is $263-million in fiscal 2016, rising slightly to $267-million in fiscal 2017. The analyst anticipates EBITDA will come in at $19.9-million in fiscal 2016, holding steady at $19.8-million in fiscal 2017. Earnings per share is expected to be $1.73 in fiscal 2016 and $1.76 in fiscal 2017.  In fiscal 2015, the company reported adjusted earnings per share of $1.48, up from $1.45 in fiscal 2014.

Chart Watch

The share price has rallied an impressive 35 per cent year-to-date. That being said, this uptrend appears overextended and vulnerable to a pullback.

This stock can be quite volatile given the low trading volume. The two-month historical average daily volume is approximately 6,000 shares. On Thursday, the share price jumped 3.7 per cent in a single day.

Since 2010, the share price has largely traded in a range roughly between $17 and $21. The stock price could retreat to this historical range.

The relative strength index is at 81, suggesting the shares are in overbought territory. Generally, a reading at or above 70 indicates an overbought condition.

Furthermore, the share price is approaching major overhead resistance. There is large resistance between $22.50 and $23. In early 2014 and May 2012, the share price peaked in this range, but was unable to break above $23.

Looking at downside support levels, there is initial support around $20, which is close to its 50-day moving average (at $19.75). After that, there is support at $19, and failing that there is solid support at $18, near the stock's 200-day moving average (at $18.05).

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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.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.

Below is a list of securities principally from the S&P/TSX composite index and the S&P/TSX Small Cap index that are technically breaking out, reaching new 55-day highs or lows. Securities on the positive breakouts list have displayed positive price momentum during this period. Securities on negative breakouts list have experienced negative price momentum.