Want to interact with other informed Canadians and Globe journalists? Join our exclusive Globe and Mail subscribers Facebook group
On Wednesday, major North American stock markets all closed the trading session slightly lower.
In the U.S., the Dow Jones Industrial Average decreased 0.10 per cent, the S&P 500 index lost 0.05 per cent, and the Nasdaq composite index was relatively unchanged.
In Canada, the S&P/TSX composite index declined 96 points, or 0.61 per cent. There were 101 securities in the TSX Index that advanced, 145 securities declined in value, and five stocks closed the day unchanged.
The TSX Index is up 2.37 per cent year-to-date.
On today's TSX Breakouts report, there are 29 stocks on the positive breakouts list (stocks with positive price momentum), and 42 stocks are on the negative breakouts list (stocks with negative price momentum).
Featured today is a stock that is in a long-term uptrend that appeared on the positive breakouts list at the start of the week. The stock offers investors a 2 per cent dividend yield. Management is committed to returning capital to its shareholders and has announced dividend increases of 10 per cent or higher for the past three consecutive years. In the near-term, the share price may drift lower as the valuation appear lofty, at the top end of its historical range. However, a pullback may be a potential investment opportunity for long-term investors. The security I am referred to is Premium Brands Holdings Corp. (PBH-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
British Columbia-based Premium Brands is a producer, marketer, and distributor of food products owing brand names such as Piller's, McSweeney's, Hygaard and Grimm's Fine Foods.
On March 15, the company reported better-than-expected fourth quarter results. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $45.6-million, up 44.8 per cent year-over-year, and surpassing the consensus estimate of $43.3-million. The company reported record earnings per share of 71 cents, exceeding the Street's forecast of 68 cents. The share price rallied 5.7 per cent that trading day.
Growth is a central focus for management. In the earnings release, George Paleologou, the president and chief executive officer emphasized, "We are continuing to make investments that will further help to ensure the sustainability of our growth. In terms of capital projects, we have two major construction initiatives underway, namely a new 212,000 square foot sandwich plant in Phoenix and a new 105,000 square foot distribution and custom processing facility in Toronto. The sandwich plant, which will complement our facilities in Reno, Columbus, Montreal and Edmonton, will increase our sandwich production capacity to 610,000 square feet and will uniquely position us to service a wide range of customers across the U.S. and Canada. The new distribution facility, which will be somewhat unique to the Ontario market as it will have both seafood and traditional protein processing abilities, will not only provide our seafood distribution businesses with much needed capacity but will also enable our western Canada based foodservice distribution business to enter this market. Both of these projects are scheduled to come into operation in the second half of 2017."
He also stressed the importance of acquisition growth stating, "We have executed several small but very strategic transactions over the past few months and we fully expect to complete several more in 2017. These types of transactions not only expand the capabilities and capacities of our legacy platforms, both operationally and geographically, but also generally bring with them talented and entrepreneurial management teams that further strengthen our business."
The company will be reporting its first-quarter financial results on May 15.
Dividend policy
The company has announced a dividend increase in March of every year since 2015. Last month, the company's board of directors approved a 10.5 per cent increase in its quarterly dividend, raising it to 42 cents from 38 cents. This increase marked the third consecutive year of a dividend hike by 10 per cent or more.
The company pays shareholders a quarterly dividend of 42 cents per share, or $1.68 per share on a yearly basis. This equates to an annualized yield of 2 per cent.
Analysts' recommendations
There are eight firms providing recent research coverage on the company, of which 3 analysts have buy recommendations, and five analysts have hold recommendations.
The eight firms providing research coverage are as follows in alphabetical order: BMO Capital Markets, Canaccord Genuity, Cormark Securities, National Bank Financial, PI Financial Corp., RBC Capital Markets, Scotia Capital, and TD Securities.
Revised recommendations
Analysts' expectations have been rising.
On Wednesday, Leon Aghazarian, the analyst from National Bank Financial, lifted his target price to $100 from $86.
Last month, Derek Dley, from Canaccord Genuity, bumped his target price to $74 from $66. Sabahat Khan, the analyst from RBC Capital Markets, raised his target price by $8 to $86. Stephen Macleod from BMO Capital Markets lifted his target price to $83 from $70. Derek Lessard, the analyst from TD Securities, increased his target price by $7 to $90. George Doumet, the analyst from Scotia Capital, increased his target price to $78 from $67. Kyle McPhee from Cormark Securities raised his target price by $4 to $80. Robert Gibson, the analyst from PI Financial, increased his target price to $88.75 from $78.25.
Financial forecasts
The Street is forecasting EBITDA of $195-million in 2017, up from $154.8-million in 2016, with EBITDA anticipated to rise to $221-million in 2018. The consensus earnings per share estimates are $3.24 for 2017 and $3.85 for 2018.
The stock has experienced positive earnings revisions. For instance, four months ago, the consensus EBITDA estimates were $185-million for 2017 and $216-million for 2018. The Street's earnings per share forecasts were $2.99 for 2017 and $3.74 for 2018.
Valuation
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 13.2 times the consensus 2018 estimate, above its three-year historical average of 10.5 times, and near its peak multiple over this three year period.
The average 12-month target price is $84.97, implying the stock is fairly valued. Analysts have target prices ranging from a low of $74 to a high of $100. Individual target prices are as follows in numerical order: $74, $78, $80, $83, $86, $88.75, $90, and $100.
Insider transaction activity
There has been no reports of acquisition or disposition activities in the public market so far this year.
Chart watch
Year to date, the stock price is up 22 per cent, making it the second best performing stock in the S&P/TSX Consumer Staples Index, behind Empire Co. Ltd. (EMP.A-T).
However, more impressive is the longer-term chart, with the share price remaining in an uptrend.
The share price has initial overhead resistance around $86.50, near its record closing high.
On March 15, the company reported solid fourth-quarter financial results that has sent the stock price soaring to $84 from $73.30, or 15 per cent since reporting. The strong price action suggests the stock may need to digest these gains before moving higher. Consequently, in the near-term, the share price may drift lower, back to between $80 and $81.50. Should the share price fail to hold at the $80 level, there is support around $78, which is close to its 50-day moving average (at $78.13).
The relative strength index is at 56, suggesting the stock price is in neutral territory, neither overbought nor oversold. Generally, a reading at or above 70 indicates an overbought condition and a reading at or below 30 indicates an oversold 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 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.