In terms of U.S. news releases reported today, watch for weekly initial jobless claims and continuing claims data, December Services Purchasing Managers' Index (PMI) data, and the December ISM non-manufacturing index reading.
Briefly recapping Wednesday's performance, positive returns were realized for yet another day in major North American stock markets.
In the U.S., the Dow Jones industrial average, the S&P 500 index, and the Nasdaq composite all closed higher by 0.30 per cent, 0.57 per cent, and 0.88 per cent, respectively.
Turning to Canada, the S&P/TSX composite index gained 114 points, or 0.74 per cent. There were 179 securities in the TSX Index that advanced, 64 securities declined in value, and seven stocks closed the day unchanged. Only one sector, health care, closed the trading session in negative territory.
Month-to-date, the TSX Index is up 1.50 per cent. The Index is now just 141 points, or less than 1 per cent, away from closing at an all-time high.
On today's TSX Breakouts report, there are 62 stocks on the positive breakouts list (stocks with positive price momentum), while there are just three securities on the negative breakouts list (stocks with negative price momentum).
Discussed today is a security that has failed to participate in the current market rally and earlier this week appeared on the negative price breakout list. The stock's valuation is becoming more attractive, and analysts believe this stock will reward patient investors with a forecast return of over 23 per cent over the next year, and 17 analysts recently issued 'buy' recommendations. The security highlighted is Gildan Activewear Inc. (GIL-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Montreal-based, Gildan Activewear manufactures clothing such as T-shirts, fleece clothing, underwear, socks, and hosiery.
Before the market opened on Nov. 3, the company reported third-quarter financial results just shy of expectations. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $164-million (U.S.), below the Street's forecast of $169-million. Reported adjusted earnings per share (EPS) was 50 cents, a penny below the consensus estimate.
Management trimmed its earnings guidance for 2016, reducing its earnings per share outlook to between $1.48 and $1.50, down from its previous expectations of between $1.50 and $1.55. Adjusted EBITDA was reduced to between $530-million and $535-million, down from its previous guidance of between $545-million and $555-million.
In the earnings press release, management indicated that the reduced guidance reflects, "tempered Branded Apparel sales expectations in the fourth quarter, in light of current retail market conditions. In addition, projected Branded Apparel sales for the year also reflect the later than previously projected timing of shipments of a new licensed program to a large national chain retailer, previously planned to be shipped in the fourth quarter of this year and now requested for shipment in the first quarter of 2017."
Growth is anticipated to resume in the upcoming year. For 2017, management's outlook is positive, noting on the earnings conference call, "we have made attractive strategic acquisitions this year, which are expected to add approximately $120-million of annualized sales next year and the progress we have made so far on integration initiatives gives us comfort that we can generate strong synergies from these transactions. Synergies will start to flow through in 2017 and 2018 and as we previously indicated, are expected to drive an EPS accretion exit run rate of more than 13 cents by the end of 2018. We also expect to continue to benefit from the balance of our $100-million in the manufacturing-related cost savings in 2017."
On the call, the CEO also commented on the potentially positive impact from rising cotton prices, a key input cost, stating, "It's also a big impact for everybody in the industry, and that definitely would provide an opportunity, I think, to see prices moving upward versus having promotional and price pressure on the downside."
That day, the share price closed marginally lower, down 0.7 per cent.
Dividend policy
The company pays its shareholders a quarterly dividend of 7.8 cents (U.S.) per share, or 31.2 cents on a yearly basis. This equates to an annualized dividend yield of 1.2 per cent.
Share buyback
During the third-quarter, the company repurchased 1.7-million shares. During the first nine months of 2016, the company has repurchased over 12-million shares.
Valuation
According to Bloomberg, the shares are trading at a price-to-earnings multiple of 13.3 times the 2017 consensus estimate, below its three-year historical average of 15.6 times, and at an enterprise value-to-EBITDA multiple of 10.1 times the 2017 consensus estimate, also at a discount to its historical average.
The average one-year target price is $42.38, implying the share price may appreciate by more than 23 per cent over the next 12 months. Target prices range from a low of $38.85 to a high of $50.
Analysts' recommendations
Gildan Activewear is well covered by the Street. Since the beginning of November, 17 analysts have issued 'buy' recommendations and two analysts have released research reports with 'hold' recommendations on the stock.
The Street is forecasting EBITDA of $536-million (U.S.) in 2016, climbing to $602-million in 2017. The consensus earnings per share estimate is $1.49 (U.S.) in 2016, jumping nearly 17 per cent to $1.74 in 2017.
Earnings estimates have been trimmed in recent months. For instance, at the beginning of the second half of 2016, on July 1, the Street was forecasting EBITDA of $557-million for 2016 and $643-million for 2017. The consensus earnings per share estimates were $1.58 for 2016 and $1.88 for 2017.
Insider transaction activities
Glenn Chamandy, the president and chief executive officer, sold 30,000 shares at a price of approximately $34.11 per share on Nov. 10. However, this represents a small amount of his total position.
Benito Masi, the executive vice-president of manufacturing, sold 15,000 shares on Nov. 16.
This information is freely available on the website www.sedi.ca.
Chart Watch
Shares of Gildan have been an underperformer. In 2016, the share price declined 13 per cent, sharply underperforming the TSX Index and the consumer discretionary sector in the S&P/TSX composite index. The chart is negative with the share price trading below both its 50-day moving average (at $35.40) and its 200-day moving average (at $37.56).
That being said, the downside risk appears limited compared to the upside potential. Furthermore, the share price is close to key support levels.
In terms of key resistance and support levels, the share price faces initial overhead resistance around $36, and after around $38, and then at $40. There is initial downside support around $34. Failing that, there is support at $33, near its November closing low, and then around $32, close to its closing low reached in February, 2016.
The relative strength index is at 37, suggesting the share price is nearing oversold territory. Generally, a reading at or below 30 indicates an oversold condition.
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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.