Friday’s TSX breakouts: This tech leader has 10 ‘buy’ ratings on the Street

The key focus today is the decision by Britons to exit the European Union and the global equity market sell-off.

Lately, I have been focusing on the negative breakouts list, looking for industry leaders that are being sold down to more compelling valuations. In the upcoming days, I suspect the negative breakouts list will grow and with it, some investment opportunities will surface.

Given that the breakouts report is based on the previous day's closing prices, today's negative breakouts list is very brief. There are 28 securities on the positive breakouts list (stocks with positive price momentum) and just five securities on the negative breakouts list (stocks with negative price momentum).

Discussed today is a growth stock that has been a strong long-term performer; however, its uptrend has not been without its down-drafts. Its share price can be quite volatile at times. It recently resurfaced on the positive breakouts list with the share price closing at a record high on Thursday. The stock is Open Text Corporation (OTC-T).

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

The company

Open Text is an industry leader as the largest independent software provider of Enterprise Information Management.

After the close on April 27, the company reported weaker-than-expected third-quarter fiscal 2016 results, yet the share price advanced over 3 per cent the following trading day. Adjusted earnings per share came in at 80 cents (U.S.) compared to the Street's expectations of 84 cents per share. Management announced a 15 per cent increase to its quarterly dividend. Management also announced the acquisition of ANXeBusiness Corp, which is expected to be completed in the fourth quarter of fiscal 2016 along with its previously reported acquisition of certain software and service assets from HP Inc. These two acquisitions are anticipated to add approximately $115-million to $125-million in revenues in fiscal 2017.

Dividend policy

The company pays shareholders a quarterly dividend of 23 cents per share (U.S.) or 92 cents on a yearly basis. This equates to an annualized yield of 1.5 per cent.

Management has been committed to its dividend, announcing a dividend increase every April since 2014.

Valuation

According to Bloomberg, the stock is trading at a price-to-earnings multiple of 15.4 times the fiscal 2017 consensus estimate, at the top end of its three-year historical range. Its three-year historical average is 12.9 times.

Keep in mind, the company is anticipated to report its fourth quarter fiscal 2016 earnings results in July, at which time, analysts will be rolling their valuations forward and looking at fiscal 2018.

Analysts' recommendations

According to Bloomberg, the one-year price target is $80.71 (Canadian), which is based on 10 buy recommendation and three hold recommendations. This suggests the share price is close to fairly valued; however, there is a wide disparity between analysts' target prices. Target prices range from a low of $62.85 to a high of $96.08.

The consensus EBITDA estimate is $673-million (U.S.) in fiscal 2016, climbing 10 per cent to $741-million in fiscal 2017. The consensus earnings per share estimate is $3.59 (U.S.) in fiscal 2016, increasing 11 per cent to $3.99 in fiscal 2017.

Chart watch

The stock chart looks strong with the stock price up 18.5 per cent year to date.

The stock faces overhead resistance at $80. Given the pressure on equity markets, the stock will face downward pressure today. Shares of Open Text have support at $75, and failing at $73.50, close to its 50-day moving average (at $73.46), and then at $70.

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.