TSX breakouts: Positive momentum for top-performing financial services stock

There are 68 securities on the positive breakout list (securities with positive price momentum) and just three stocks on the negative breakouts list (stocks with negative price momentum).

Discussed below is a financial stock with a 6 per cent yield that is on the move, appearing on the positive breakouts list – First National Financial (FN-T).

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

The Company

First National Financial Corporation is the parent company of First National Financial LP, and is the country's largest non-bank mortgage lender. First National services both businesses as well as individuals by offering commercial and residential mortgages and has a portfolio of over $93 billion in mortgages under administration. First National Financial will be celebrating its tenth year as a public company on June 15.

The company reported better-than-expected fourth-quarter financial results after the market closed on February 23, sending the stock 2 per cent higher the following day. Mortgages under administration increased 5 per cent on an annualized basis to $93.8 billion.

Management's outlook for 2016 is positive owing to the low interest rate environment, which management anticipates will "keep mortgage affordability at favourable levels and mitigate refinancing risk".

Dividend Policy

Management is committed to its dividend, frequently raising its dividend. In October, the company announced a 3 per cent increase to the monthly dividend, representing the eighth increase since the company went public in 2006. The dividend was increased to 12.9167 cents per share from 12.5 cents. This equates to yearly rate of $1.55 per share, or an annualized yield of 6.1 per cent.

The payout ratio was just under 60 per cent in the fourth-quarter.

Valuation

The stock is trading at a price-to-earnings multiple of 9.0 times the 2017 consensus earnings estimate. This is relatively in-line with its historical three-year and five-year averages of 8.8 times and 8.9 times, respectively. Valuations vary depending on analysts' assumptions; however, there is very little variability amongst analysts' forecasts. Analysts' target prices range from a low of $22 to a high of $24. Individual target prices are as follows: one at $22, and three at $24.

Analysts' Recommendations

First National Financial has just one buy recommendation and three hold recommendations. There are no sell recommendations. The average one-year price target amongst these analysts is $23.50, suggesting that the share price is fully valued.

The consensus earnings per share forecast is $2.62 in 2016, increasing 7 per cent to $2.80 in 2017.

Chart Watch

Year-to-date, the stock price has appreciated 12.8 per cent, making this one of the top performing stocks in the financial sector.

Since late-2013, the stock has largely traded between $20 and $24, excluding the dip in the summer of 2015.

The stock is now trading at the upper end of its historical trading range and is nearing strong overhead resistance. The stock has large technical resistance just below $26, back to its record high of $25.90 reached on February 27, 2014.

There is downside support around $21, close to both its 50-day moving average (at $21.34) and 200 day moving average (at $20.80).

The relative strength index is at 78, suggesting the shares are in overbought territory. Generally, a reading of 70 or higher indicates an overbought condition. That being said, a security can remain overbought for some time.

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 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. Securities on the positive breakouts list have displayed positive price momentum during this period. Securities on negative breakouts list have experienced negative price momentum.