Today, Canadian inflation data will be released, and there are no major U.S. economic announcements. There are no companies in the S&P/TSX composite index scheduled to report earnings results until Tuesday, Nov. 22, when Alimentation Couche-Tard Inc. (ATD.B-T), and George Weston Ltd. (WN-T) will both be announcing their quarterly results before the market opens.
This morning, it's a mixed picture in commodities. Natural gas futures are up sharply, oil futures are up slightly, while gold, silver, and copper prices are all down mildly.
Briefly recapping Thursday's performance, the S&P/TSX composite index rallied 93 points, or 0.63 per cent. There were 159 securities in the TSX Index that advanced, 85 securities declined in value, and three stocks closed the day unchanged. In terms of sectors, 10 of the 11 sectors closing in positive territory. The only sector in decline was the materials sector with gold stocks retreating.
The S&P/TSX composite index is up 0.26 per cent month-to-date, up 0.68 per cent quarter-to-date, and has a year-to-date gain of nearly 14 per cent -- 13.94 per cent to be exact.
On today's TSX Breakouts report, there are more stocks with positive momentum compared to negative momentum, something we have not seen for a while. There are 38 stocks on the positive breakouts list (stocks with positive price momentum), and 18 securities on the negative breakouts list (stocks with negative price momentum). If you exclude gold and silver stocks, the negative list dwindles down to just nine securities.
Discussed today is a dividend stock that has come under recent pressure due to rising bond yields. The share price has fallen five per cent since the U.S. election results were announced, and the stock appeared on Wednesday's negative breakout list. As a result, its valuation is becoming more interesting. The security highlighted is Fortis Inc. (FTS-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Fortis is a North American electric and gas utility company, focused on transmission and distribution, serving customers across Canada, the United States, and in Caribbean countries. The company's assets are largely regulated utilities.
In October, Fortis completed the largest acquisition in the company's history, purchasing Michigan-based ITC Holdings Corp. In the company's third-quarter earnings press release, Barry Perry, the chief executive officer, stated, "ITC further diversifies our business and positions us well for continued growth. We remain confident that this transaction will be accretive to earnings per common share in 2017."
Before the market opened on Nov. 4, the company reported better-than-expected third-quarter financial results. Adjusted earnings per share came in at 54 cents, surpassing the consensus estimate of 49 cents. Management also disclosed its five-year forecast, the "mid-year base rate compound annual growth rate is 4.1 per cent." The share price advanced 1 per cent that day.
Last month, shares of Fortis began trading on the New York Stock Exchange. The company is now dual listed, trading on both the Toronto Stock Exchange and the New York Stock Exchange (NYSE) under the same ticker, FTS.
Dividend Policy
The company pays shareholders a quarterly dividend of 40 cents per share, or $1.60 per year, equating to an annualized yield of 3.96 per cent.
Management if firmly committed to its dividend. The company has increased its dividend annually for 43 consecutive years. Looking forward, management anticipates further dividend growth, and has targeted an annual dividend growth rate of 6 per cent through to the year 2021.
Valuation
According to Bloomberg, the shares are trading at a price-to-earnings multiple of 15.96 times the 2017 consensus estimate, below its three-year historical average of 17.2 times and its five-year historical average of 17.5 times. Over the past five years, the stock has traded in a range principally between 15 times and 20 times forward earnings.
Analysts' Recommendations
There are 10 analysts with 'buy' recommendations and four analysts have 'hold' recommendations. There are no 'sell' recommendations.
The average one-year target price is $49, implying the share price has 21 per cent upside potential over the next 12 months. Target prices range from a low of $44.50 to a high of $52, suggesting the stock price may rally between 10 per cent and 29 per cent. Individual target prices provided by 11 firms in numerical order are as follows: $44.50, $46, two at $47, $48, four at $50, $51, and $52.
The Street is forecasting earnings per share of $2.19 in 2016, rising over 15 per cent to $2.53 in 2017.
Earnings forecasts have been relatively stable for 2016, and spiked higher for 2017 on the back of the announced ITC acquisition. On Jan. 1, the consensus earnings per share estimates were $2.14 for 2016 and $2.28 for 2017.
Chart Watch
There is initial overhead resistance around $42, close to its 50-day moving average (at $41.95), and after that, around $44.50.
There is initial downside support around $40. Failing that, there is support at $38, and then at $36.
The relative strength index is at 40, suggesting the shares are not in oversold territory despite the recent price weakness. Generally, a reading of 30 or lower 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 indices 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.