Monday’s TSX breakouts: Privatization speculation drives this stock with 9.6% yield higher

On today's price breakouts list, there are 21 positive breakouts (stocks with positive price momentum), while the list of negative breakouts (stocks with negative price momentum) stands at seven companies.

Discussed below is a high-dividend paying stock rising on privatization speculation, reaching a new 55-day intraday high of $4.45 on Friday, before closing at $4.39, unchanged from the previous day – Sirius XM Canada Holdings Inc. (XSR-T).

Sirius XM Canada is a satellite radio provider with over 2.7 million subscribers. The company offers more than 130 radio channels featuring talk, sports, news, and commercial-free music. The company has partnerships with automakers, pre-installing Sirius radio into vehicles for a trial membership with the objective of converting listeners into subscribers.

On Feb. 11, the Globe and Mail reported of a potential plan to take the company private, indicating a potential buyout price of $4.25 a share in cash. A link to this story is provided at the bottom of this report.

The following day, in a company news release, management acknowledged the following, "The Company has been approached on a preliminary basis regarding a potential corporate transaction. The Company has not received a binding proposal and is in early stage discussions as to the viability of such potential transaction. There can be no assurances that a definitive transaction will result from any such proposal." This announcement has sparked the interest of speculative investors causing the stock price to rally 19 per cent since the day before this announcement.

Quarterly results

On Jan. 13, after the market closed, the company reported first quarter fiscal 2016 results that failed to impress investors with the stock price falling 4 per cent the following day. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 2.7 per cent year-over-year to $23.5-million, just shy of the $24.1-million consensus EBITDA estimate.

Dividend policy

Sirius pays shareholders a quarterly dividend of 10.5 cents per share, or 42 cents per year, equating to an annualized dividend yield of 9.6 per cent.

The company has maintained its quarterly dividend at this level since 2013, and paid shareholders a special dividend of 58.5 cents per share in 2014.

The free cash flow payout ratio was 97.6 per cent in fiscal 2015.

Valuation

The stock is trading at a low valuation and at a discount to its historical trading range. Shares of Sirius XM Canada are trading at a forward enterprise value-to-EBITDA (EV/EBITDA) multiple of 9.6 times consensus fiscal 2016 estimate.

Analysts' recommendations

According to Bloomberg, there are three analysts with a buy recommendation, and four analysts with hold recommendations. There are no sell recommendations. The average one-year price target is $4.96, implying the shares may appreciate in value by 13 per cent over the next year. Price targets range from a low of $4.25 to a high of $6.50. Individual price targets are as follows: $4.25, two at $4.50, two at $5, and $6.50 (one firm does not have a price target listed on Bloomberg).

The consensus EBITDA forecast is $81.95-million in fiscal 2016, rising nearly 5 per cent to $85.8-million in fiscal 2017.

Chart watch

The stock's chart is not attractive. The stock price has been in an downtrend since the beginning of 2014, falling from over $10.

There is downside support around $4, near its 50-day moving average, and failing that around $3.50. There is upside resistance around $4.80, near the stock's 200-day moving average.

The relative strength index is at 65, suggesting the stock is nearing an overbought level. 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 stock 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 stock 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 stocks in 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. Stocks on the positive breakouts list have displayed positive price momentum during this period. Stocks on negative breakouts list have experienced negative price momentum.