Market action may be tilted to the downside today and buyers remaining on the sidelines ahead of Friday's U.S. non-farm payrolls reports. On Wednesday, the U.S. ADP employment report released was very strong.
This morning, major commodities are mixed. The price of oil is up mildly, hovering around the $54 (U.S.) a barrel level, natural gas futures are down around 1 per cent, while the price of gold is up over 1 per cent.
Today, there are no key Canadian economic releases. There are five companies in the S&P/TSX composite index scheduled to report quarterly financial results today, they are BCE Inc. (BCE-T), Brookfield Renewable Partners L.P. (BEP.un-T), Saputo Inc. (SAP-T), Open Text Corp. (OTC-T) and Manitoba Telecom Services Inc. (MBT-T).
In the U.S., weekly initial jobless claims and continuing claims data will be released.
Briefly recapping Wednesday's performances, major North American equity markets closed in positive territory.
In the U.S., the Dow Jones Industrial Average advanced 0.14 per cent, the S&P 500 index was relatively unchanged, inching up 0.03 per cent, and Nasdaq composite index gained half a per cent.
Turning to Canada, the S&P/TSX composite index rallied 16 points, or 0.11 per cent. There were 142 securities in the TSX Index that advanced, 103 securities declined in value, and four stocks closed the day unchanged.
The TSX Index is up 0.75 per cent year-to-date led by strength in gold and silver stocks.
On today's TSX Breakouts report, there are 20 stocks on the positive breakouts list (stocks with positive price momentum), and 13 stocks on the negative breakouts list (stocks with negative price momentum.
The security highlighted today is just shy of appearing on the negative breakouts list – Cardinal Energy Ltd. (CJ-T). The stock offers investors an attractive dividend yield of 4.8 per cent, has 12 'buy' recommendations, and a forecast price return ranging from 21 per cent to 61 per cent.
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Calgary-based Cardinal Energy is a junior oil-weighted company with operations located in Alberta.
Dividend policy
The company pays its shareholders a monthly dividend of 3.5 cents per share, or 42 cents on a yearly basis. This equates to an attractive annualized dividend yield of 4.8 per cent.
On Jan. 24, the company announced its 2017 capital budget of $100-million. Management indicated that the annualized dividend of 42 cents per share was expected to be maintained.
Last year, on Jan. 14, when the price of West Texas Intermediate oil broke below $30 (U.S.), management at Cardinal announced plans to slash its dividend to the present level of 42 cents per share annually from 84 cents. Management stated in the news release that, "The company believes that right sizing its dividend for the current crude oil price environment is prudent and will allow Cardinal to maintain its total payout ratio at less than 100% of cash flow from operations."
Valuation
Analysts commonly value the stock on an enterprise value-to-debt adjusted cash flow multiple basis. Analysts' target prices range from a low of $10.50 to a high of $14. Individual target prices provided by 12 firms are as follows in numerical order: $10.50, $10.75, $11.50, two at $12, $12.50, two at $13, $13.50, $13.75, $12.50, and $14. The consensus one-year target price is $12.23, suggesting the share price has 41 per cent upside potential over the next 12 months.
Analysts' recommendations
This small cap stock, with a market capitalization of $643-million, is well covered by the Street. According to Bloomberg, 13 analysts have issued research reports on the company since October 2016, 12 have 'buy' recommendations, and one analyst (from EVA Dimensions) has a 'hold' recommendation.
The 13 firms providing recent research coverage are as follows in alphabetical order: BMO Capital Markets, Canaccord Genuity, CIBC Wold Markets, Clarus Securities, Cormark Securities, EVA Dimensions, GMP, Haywood Securities, Macquarie, National Bank Financial, RBC Capital Markets, Scotia Capital and TD Securities.
Revised recommendations
Last month, several analysts lifted their target prices. Adam Gill, the analyst from CIBC World Markets, raised his target price to $13 from $11. Sam Roach, the analyst from Canaccord Genuity, increased his target price to $12.50 from $12. Darrell Bishop, the analyst from Haywood Securities, bumped his target price to $13.50 from $12.50. Cormark Securities' analyst, Garett Ursu, raised his target price to $14 from $12.25, and Robert Pare, from Clarus Securities, increased his target price by 50 cents to $11.50.
There was one downgrade, Aaron Bilkoski from TD Securities reduced his target price to $10.50 from $12 after management released their 2017 capital budget.
Financial forecasts
The Street is forecasting spectacular growth for the company. The consensus cash flow per share estimate is 90 cents in 2016, expanding 36 per cent to $1.23 in 2017. The consensus cash flow per share estimate is $1.76 in 2018, up 43 per cent from the prior year.
Forecasts have remained relatively stable in recent months. For instance, six months ago, the consensus cash flow per share estimates were 86 cents for 2016 and $1.24 for 2017.
Insider transaction activities
In December, when the share price was trading near the upper end of its recent trading band (trading between $8 and $10.50 since March 2016), several insiders were selling shares. As part of the executive management team, Craig Kolochuk holds the position as VP Land. He reduced his holdings by 40,000 shares during the month over the course of a number of days, selling at prices ranging from $10.365 per share to $10.50 per share. Also on the executive team, Tim Hyde, VP Exploration, sold 25,000 shares in December at a price of $10.12 per share. In addition, board member, James Smith, sold 50,000 shares on Dec. 7 at a price of $9.8679 per share.
Chart watch
Year-to-date, the energy sector is the worst performing sector in the S&P/TSX composite index, declining 5.6 per cent. However, shares of Cardinal have sharply underperformed the sector. Year-to-date, Cardinal's share price is down 18 per cent.
Since March 2016, the share price has been range bound, trading primarily between $8 and $10.50, and is currently trading at the lower end of this band.
In terms of key resistance and support levels, the share price has initial overhead resistance around $9, and after that, between $10 and $10.50. There is initial downside support around $8. Failing that, there is support around $7.50.
The relative strength index is at 37, suggesting the shares are not yet oversold, despite the sharp decline in the share price year-to-date. 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.