On tap for Thursday, Dominion Diamond Corp. will be reporting its third-quarter fiscal 2017 financial results after the market closes.
This morning, Canadian housing data, November housing starts and October building permits data, will be released, and in the U.S., initial jobless claims and continuing claims data are the key announcements to take note of.
Earlier this morning, the European Central Bank announced it is extending its asset-purchase program sending the Euro higher relative to the U.S. dollar.
Briefly recapping Wednesday's stock market performances, the strength continued for major North American equity markets in this historically seasonally strong period.
In the U.S., the Dow Jones Industrial Average, S&P 500 Index, and Nasdaq composite closed up 1.55 per cent, higher by 1.32 per cent, and up 1.14 per cent, respectively.
In Canada, the S&P/TSX composite index is less than 3 per cent away from setting an all-time high. The index gained 112 points, or 0.74 per cent. There were 152 securities in the TSX Index that advanced, 91 securities declined in value, and four stocks closed the day unchanged. Most of the sectors in the Index, nine of the 11, closed in the green led by strength in the consumer discretionary sector with auto parts makers up strongly - Martinrea International Inc. and Magna International Inc. rallied 7.4 per cent and 5.6 per cent, respectively (Magna was highlighted in Wednesday's TSX Breakouts report).
The TSX Index is up 1.03 per cent month-to-date, up 3.48 per cent quarter-to-date, and has a year-to-date gain of 17.12 per cent.
On today's TSX Breakouts report, there are 51 stocks on the positive breakouts list (stocks with positive price momentum), and 14 securities on the negative breakouts list (stocks with negative price momentum).
Bond proxy securities have faced intense selling pressure in recent weeks with rising interest rates. Highlighted today is American Hotel Income Properties REIT Limited Partnership (HOT.UN-T), or AHIP, which appears on the negative breakouts list. For investors seeking income, this security offers a yield of over 8 per cent and the current price weakness may represent a future buying opportunity.
A brief outline is provided below that may serve as a springboard for further fundamental research.
The limited partnership
American Hotel Income Properties REIT LP, or AHIP, has a portfolio of 84 hotel properties located across the United States, and is focused on owning and acquiring hotels in secondary markets that are located in high traffic areas in close proximity to transportation such as railroads, airports, and highways. Its portfolio is divided into two segments, 45 railroad hotels and 39 branded hotels. Railway hotels, operating under the banner Oak Tree Inn Hotels, services the U.S. rail industry. These railway hotels have an attractive feature – lodging contracts spanning over a number of years. The majority, approximately 74 per cent, of the rail guestrooms are guaranteed, which smooths the company's funds from operations (FFO) and provides reliable cash flows. The branded hotels segment has franchise agreements with leading hotels such as Hilton and Marriott. Rail hotels represented 44 per cent of net operating income in the third-quarter, with the balance, 56 per cent, of net operating income coming from branded hotels.
After the market closed on Nov. 8, AHIP reported FFO per unit of 24 cents (U.S.), two cents below the consensus estimate. Adjusted funds from operations (AFFO) per unit was 21 cents, a penny shy of forecasts. The unit price declined a penny the following trading day.
On Dec. 5, AHIP announced a $100-million (Cdn) bought deal equity financing, issuing 9.81-million units at a price of $10.20 per unit. Also announced that day was the renewal of six railway lodging contracts, which will increase the weighted average term of AHIP's railway lodging agreements to 4.6 years from 3.9 years.
Distribution policy
AHIP pays unitholders a monthly distribution of 5.4 cents (U.S.) per unit, or 64.8 cents per year, equating to an annualized yield of 8.4 per cent.
The distribution appears sustainable as the AFFO payout ratio reported in the third quarter was 82.5 per cent and 77.1 per cent for the first three quarters of 2016.
Valuation
On a price-to-FFO basis, AHIP is trading at a multiple of 7.2 times the 2017 consensus forecast. On a price-to-AFFO basis, AHIP is trading at a multiple of 8.2 times the 2017 consensus estimate (using an exchange rate of 1.322 Canadian dollars per U.S. dollar).
The average one-year target price is $12.25 (Cdn), implying the unit price may appreciate 20 per cent over the next 12 months. Target prices range from a low of $11.25 to a high of $13.25. Individual price targets in numerical order are as follows: $11.25, two at $12, two at $12.50, $13.25.
Analysts' recommendations
This small-cap security, with a market capitalization of $461-million (Canadian), has ample coverage by the Street with six analysts covering the stock, with unanimous 'buy' recommendations. The firms providing research coverage are as follows in alphabetical order: Canaccord Genuity, CIBC World Markets, Haywood Securities, Industrial Alliance Securities, National Bank Securities, and TD Securities.
The Street is forecasting FFO per unit of 90 cents (U.S.) in 2016, rising 19 per cent to $1.07 in 2017. The consensus AFFO per unit estimates are 79 cents in 2016, and 95 cents in 2017.
Chart watch
Over the past three years, the unit price has traded principally between $10 (Canadian) and $11.50. Investors have benefitted by accumulating units at the bottom end of this trading range.
Over the past two trading sessions, there has been intense selling pressure on the security. Nearly 1.5-million units traded on Tuesday and over 500,000 units traded on Wednesday, which is well above the two-month historical daily average trading volume of approximately 180,000 units. The unit price is once again returning to the lower boundary of this range and is down 3.9 per cent year-to-date.
There is initial downside support around $10, the unit price dipped to $9.90 earlier this year, on February 11, and closed at $9.89 on January 15.
There is overhead resistance around $11, and beyond that, at $11.50, and then at $12.
The relative strength index is at 37, suggesting the units are nearing oversold territory. Generally, a reading of 30 or lower 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.