This morning, major North American stock markets look to extend their gains and open higher.
In terms of news releases to watch for today, U.S. mortgage applications data will be released before the markets open, U.S. auto makers will be reporting December sales, the minutes from the December U.S. Federal Reserve meeting will be released at 2 p.m. (ET), and after North American markets close, China Caixin Services Purchasing Managers' Index (PMI) data for December will be reported.
Briefly recapping Tuesday's performance, it was a positive start to the new year for major North American stock markets.
In the U.S., the Dow Jones industrial average closed higher by 0.60 per cent, while the S&P 500 Index and Nasdaq composite each closed higher by 0.85 per cent.
Turning to Canada, the S&P/TSX composite index gained 115 points, or 0.76 per cent, led by strength in gold and silver stocks. There were 149 securities in the TSX index that advanced, 95 securities declined in value, and six stocks closed the day unchanged.
The TSX index is 255 points, or less than 2 per cent away from closing at a record high.
On today's TSX Breakouts report, there are 28 stocks on the positive breakouts list (stocks with positive price momentum), while there are no securities on the negative breakouts list (stocks with negative price momentum).
As always, I like to feature a variety of stocks to appeal to a wide range of investors. Discussed today is a microcap security that offers shareholders an attractive 4.5 per cent dividend yield, is well-covered and highly recommended by analysts with an unanimous 'buy' recommendation from seven analysts (several of whom are from large firms), and according to analysts, the company is poised for future growth. One major risk is the lack of liquidity, which can make the share price quite volatile. The security highlighted is Crown Capital Partners Inc. (CRN-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The Company
Crown is a specialty finance company that provides capital to businesses, offering companies an alternative to traditional lending institutions and providers.
Chris Johnson, the president and chief executive officer, provided a positive outlook on the third-quarter earnings conference call, indicating, "Looking ahead, we expect to put our cash flows to work in relatively short order, and this will drive a significant improvement to both our top and bottom lines. We also expect to finance a credit facility in the fourth quarter that will provide for a much greater capital efficiency. With our capital fully deployed and [we] have a modest leverage [to] apply against fix[ed] overhead costs, our business model allows [us] to generate significant increases in earnings, our cash flow and our dividend. In addition, we expect to have a much higher ROE with a near-term target in the low teens."
He went on to say that he is seeing a pipeline of potentially larger deals, stating, "I'd say in the past, at least from last year, average size has been $15-million, $25-million, but we're seeing a number of deals that are pressing us on that $40-million and plus range."
Dividend Policy
The company pays its shareholders a quarterly dividend of 11 cents per share, or 44 cents on a yearly basis. This equates to an annualized dividend yield of 4.5 per cent.
On the third-quarter earnings conference call, Lyle Bolen, the chief financial officer, stated, "Our business has significant operating leverage, and as we deploy the capital, we plan to return a substantial portion of that cash to our shareholders through a growing dividend."
Valuation
According to Bloomberg, the shares are trading at a price-to-book multiple of 0.8 times the 2017 consensus estimate.
The average one-year target price is $11.32, implying the share price may appreciate by more than 16 per cent over the next 12 months. Target prices range from a low of $10.50 to a high of $12. Individual price targets are as follows in numerical order: $10.50, two at $11, two at $11.50, $11.75, and $12.
Analysts' Recommendations
This microcap stock, with a market capitalization of $92-million, is covered by seven analysts on the Street, all of whom have 'buy' recommendations. The seven firms providing research coverage on Crown Capital are as follows in alphabetical order: Alta Corp. Capital, BMO Capital Markets, Canaccord Genuity, Cormark Securities, GMP, National Bank Financial, and Raymond James.
The Street is forecasting revenues of $16.4-million in 2016, rising to $26.6-million in 2017. The consensus EBITDA estimate is $11.5-million in 2016, climbing to $21-million in 2017. The consensus earnings per share estimate is 58 cents in 2016, jumping to 88 cents in 2017.
Earnings estimates have been reduced in recent months. For instance, at the beginning of the second half of 2016, on July 1, the Street was forecasting revenues of $19.6-million in 2016 and $29.8-million in 2017. The consensus EBITDA estimate was $14.5-million for 2016 and $23.5-million for 2017. The consensus earnings per share estimates were 79 cents for 2016 and $1.11 for 2017.
Insider Transaction Activities
Chris Johnson, the president and chief executive officer, purchased 10,000 shares at a price of $9.39 per share on Nov. 11 and bought 50,000 shares at a price of $9.25 per share on Nov. 30.
Glen Roane, a member of the Board of Directors, purchased 6,700 shares at a price of $9.57 per share on Dec. 8, and 1,400 shares at a price of $9.50 per share on Dec. 21.
Chart Watch
The stock has limited trading history given that it was just listed on the Toronto Stock Exchange in mid-2015. The share price is trading below its initial public offering price of $11 per share.
In 2016, from the beginning of May through to the end of the year, the share price traded principally between $9 and $10.
The share price can be volatile given the lack of liquidity. For instance, on some days, no shares are traded. The two-month historical daily average trading volume is less than 14,000 shares.
In terms of key resistance and support levels, the share price faces initial overhead resistance around $10, and after at $11. There is strong downside support around $9, which is close to its 200-day moving average (at $8.90).
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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.