Friday’s TSX breakouts: This industrial stock features 27 years of dividend increases

On Thursday, the S&P/TSX composite index dipped 97 points, or 0.68 per cent, to 14,134.

There were 77 stocks that appreciated in value, 159 securities declined in value, and four securities were unchanged. Weakness stemmed from the two resources sectors, materials and energy, each with declines in excess of 1 per cent. Year-to-date, the TSX Index is up 8.64 per cent.

The U.S. June non-farm payroll data released on this morning at 8:30 a.m. ET came in 287,000, well above expectations. North American futures are pointing to a higher open.

On Thursday, North American equity markets were relatively quiet ahead of this employment report, and as a result, today's Breakouts Report is short. There are 22 securities on the positive breakouts list (stocks with positive price momentum), and 14 securities on the negative breakouts list (stocks with negative price momentum).

Discussed today is a stock that on a valuation basis, appears to be getting rich, or fully valued. The stock is Toromont Industries Ltd. (TIH-T).

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

The company

Toromont has two divisions, the Equipment Group and CIMCO. The Equipment Group, which represents the majority of the company's total revenues, is involved in the sale, rental, and service of equipment for manufacturers, notably Caterpillar. The company's CIMCO division is focused on designing, manufacturing, and installing refrigeration systems serving the industrial and recreational markets.

After the market closed on April 26, Toromont reported first-quarter financial results that exceeded the Street's expectations. Earnings per share came in at 31 cents, up 19 per cent year over year, and above the consensus estimate of 28 cents. The following day, the share price rallied 9 per cent on high volume with nearly 1 million shares traded.

In 2015, the company reported return on equity of 21.6 per cent.

Returning capital to shareholders

Management is firmly committed to returning capital to its shareholders.

In February, management announced a 6-per-cent increase to its quarterly dividend, raising it to 18 cents per share from 17 cents. This equates to an annualized dividend yield of 1.8 per cent. This increase reflects the 27 years of consecutive dividend hikes. The company has a strong balance sheet to support its dividend.

During the first quarter, the company repurchased 89,244 common shares.

Valuation

According to Bloomberg, the stock is trading at a price-to-earnings multiple of 17.9 times the consensus 2017 estimate, which is well above its historical three-year and five-year averages of 15.2 times and 14.5 times, respectively. In addition, the stock is trading at a peak multiple, at the top end of its historical range.

Analysts' recommendations

According to Bloomberg, the average one-year target price is $38.72, based on four buy recommendations and five hold recommendations. This suggests the share price is fully valued. Target prices range from a low of $36.50 to a high of $42. Individual target prices are as follows: $36.50, two at $37, $37.50, $38, $39, $40.50, $41, and $42. The share price closed at $39.42 on July 7.

According to Bloomberg, the consensus EBITDA estimate is $294-million in 2016, rising 7 per cent to $316-million in 2017. The consensus earnings per share estimate is $2 in 2016 increasing over 10 per cent to $2.21 in 2017.

Chart watch

The stock's long-term chart is impressive with the shares in an uptrend since 2009. Year to date, the share price is up an impressive 25 per cent.

The stock price has rallied nearly 5 per cent so far this week, rising on high volume. On Thursday, nearly 300,000 shares traded and on Tuesday, over 330,000 shares traded, well above the historical two-month average daily volume of approximately 188,000 shares. Once this demand subsides, the stock price may retreat. The share price is approaching initial overhead resistance around $40.

In terms of downside risk, the stock has initial downside support around $37, which is near its 50-day moving average (at $37.36). After that, there is support around $35, and then around $33, which is close to its 200-day moving average (at $33.18).

The relative strength index is at 68, suggesting that the shares are approaching overbought territory. Generally, a reading at or above 70 indicates an overbought condition.

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.