Skip to main content

Today, in terms of economic releases, Canadian wholesale trade sales for the month of November will be released.

Meanwhile, in the U.S., there are no major economic releases scheduled for today.

Briefly recapping Friday's performance, all major North American equity markets closed in the green.

In the U.S., the Dow Jones Industrial Average gained 0.48 per cent, the S&P 500 index advanced 0.34 per cent, and the Nasdaq composite index increased 0.28 per cent.

Turning to Canada, the S&P/TSX composite index rallied 138 points, or 0.90 per cent, with nine of the 11 sectors closing higher. There were 181 securities in the TSX Index that advanced, 64 securities declined in value, and five stocks closed the day unchanged.

Month-to-date, the TSX Index is up 1.70 per cent.

On today's TSX Breakouts report, there are 33 stocks on the positive breakouts list (stocks with positive price momentum) and just two securities on the negative breakouts list (stocks with negative price momentum).

The security highlighted today may appear on the positive breakouts list sometime in 2017 – TransCanada Corp. (TRP-T). The stock offers investors a 3.6-per-cent yield combined with 10-per-cent upside forecast.

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

The company

Alberta-based TransCanada is an energy infrastructure company that operates a network of natural gas pipelines. TransCanada is well known for the highly contentious Keystone XL pipeline, a project that may resume its spotlight given U.S. president Donald Trump's expressed interest in engaging in discussions.

On Nov. 16, the company completed its recent financing, raising approximately $3.5-billion through the issuance of over 60-million shares at a price of $58.50 per share. Proceeds from the financing were used to help fund the acquisition of Columbia Pipeline Group Inc., which was completed in July 2016.

On Nov. 1, the company reported better-than-expected third-quarter financial results. Adjusted earnings per share (EPS) came in at 78 cents per share, surpassing the consensus estimate of 68 cents per share.

The company also announced plans to maintain its interest in its Mexican natural gas pipelines. Russ Girling, the chief executive officer stated, "While the sale of a minority interest in our growing natural gas pipeline footprint in Mexico was an option, we determined that we would maximize short- and long-term shareholder value by retaining our full ownership interest in these assets and instead access capital markets. This will allow us to fully capture future growth associated with the portfolio, is expected to be accretive to earnings per share and is consistent with maintaining a simple corporate structure."

The stock is dual listed, trading on both the Toronto Stock Exchange and the New York Stock Exchange under the same ticker, TRP.

Dividend policy

TransCanada pays its shareholders a quarterly dividend of 56.5 cents per share, or $2.26 on a yearly basis. This equates to an annualized dividend yield of 3.6 per cent.

The company has raised its dividend for the past 16 consecutive years. If history repeats itself, management may announce a dividend hike next month along with the expected release of its year-end financial results.

Management is firmly committed to returning capital to its shareholders, guiding to a dividend growth rate at the upper end of its previously announced targeted range of between 8 per cent and 10 per cent per year through 2020.

Valuation

According to Bloomberg, the stock is trading at an enterprise value-to-earnings before interest, taxes, depreciation and amortization (EV/EBITDA) multiple of 14.4 times the 2017 consensus estimate. On a price-to-earnings (P/E) basis, the stock is trading at a P/E multiple of 21.7 times the 2017 consensus estimate, which is slightly above its five-year historical average of 21 times.

Analysts have target prices that range from a low of $60 to a high of $74. Individual target prices supplied by 12 firms are as follows in numerical order: $60, $63, $64, $66, $68, $69, two at $70, $71, $72, $73, and $74. The average one-year target price based on analysts' forecasts is $68.50, suggesting the shares may realized a potential price return of 9.5 per cent over the next 12 months.

Analysts' recommendations

According to Bloomberg, 15 analysts have issued research reports since October, 10 analysts have 'buy' recommendations, four analysts have 'hold' recommendations, and one analyst (from EVA Dimensions) has a 'sell' recommendation.

The 15 firms providing recent research reports are as follows in alphabetical order: Accountability Research, BMO Capital Markets, CIBC World Markets, Credit Suisse, Edward Jones, EVA Dimensions, GMP, Goldman Sachs, Morningstar, National Bank Financial, Peters & Co., RBC Capital Markets, Scotia Capital, TD Securities, and Veritas Investment Research.

Analysts' revisions

In November, two analysts revised their target prices higher. Linda Ezergailis, the analyst from TD Securities, increased her target price to $74 from $67 and maintained her 'buy' recommendation. In addition, Patrick Kenny, the analyst from National Bank Financial, lifted his target price by a dollar to $63 while maintaining his 'sector perform' recommendation.

Financial forecasts

The consensus EPS estimate is $2.68 in 2016, and is expected to rise over 7 per cent to $2.88 in 2017. The Street is forecasting EPS to climb over 4 per cent to $3.01 in 2018.

The stock has experienced positive earnings revisions. For instance, halfway through last year, on July 1, the consensus EPS forecasts were $2.49 for 2016 and $2.70 for 2017.

Chart watch

The chart pattern appears neutral.

Year-to-date, the share price is up 3.3 per cent.

Since the beginning of July 2016, the stock price has been consolidating, or trading sideways, principally between $58.50 and $63.

The share price has initial overhead resistance around $63.50, and after that around $65. There is initial downside support around $60, close to its 50-day moving average (at $60.60). Failing that, there is support around $58.50, near its 200-day moving average (at $58.54) and then around $55.

==

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.

TSX breakouts

Positive BreakoutsJan. 20 close
AW.UN-TA&W Revenue Royalties Income Fund $38.89
ARE-TAecon Group Inc $15.80
BOS-TAirBoss of America Corp $12.92
BDI-TBlack Diamond Group Ltd $5.17
BPF.UN-TBoston Pizza Royalties Income Fund $23.05
CNR-TCanadian National Railway Company $93.45
CFX-TCanfor Pulp Products Inc $10.70
CCA-TCogeco Communications Inc $71.12
CGO-TCogeco Inc $61.70
CNL-TContinental Gold Inc $4.56
ECA-TEncana Corp $17.63
EFX-TEnerflex Ltd $18.87
EXE-TExtendicare Inc $10.20
FSV-TFirstService Corp $65.75
GH-TGamehost Inc $11.45
WN-TGeorge Weston Ltd $114.25
GEI-TGibson Energy Inc $19.47
GSY-Tgoeasy Ltd $26.87
G-TGoldcorp Inc $20.55
ISV-TInformation Services Corp. $18.45
IVN-TIvanhoe Mines Ltd $3.69
MKP-TMCAN Mortgage Corp $14.90
MST.UN-TMilestone Apartments REIT $21.70
MRT.UN-TMorguard Real Estate Investment Trust $15.10
NWC-TNorth West Co Inc $30.12
PAA-TPan American Silver Corp $24.52
RME-TRocky Mountain Dealerships Inc $10.80
RSI-TRogers Sugar Inc $6.91
SAP-TSaputo Inc $48.25
SVY-TSavanna Energy Services Corp $2.23
TKO-TTaseko Mines Ltd $1.68
TRI-TThomson Reuters Corp $60.00
TRP-TTransCanada Corp $62.53
Negative Breakouts
CR-TCrew Energy Inc $6.09
TOG-TTORC Oil & Gas Ltd $7.14

Source: Bloomberg