On Monday, major North American stock markets all closed the trading session with solid gains.
In the U.S., the Dow Jones Industrial Average increased 1.05 per cent, the S&P 500 index gained 1.08 per cent, and the Nasdaq composite index advanced 1.24 per cent.
In Canada, the S&P/TSX composite index rallied 98 points, or 0.63 per cent. There were 130 securities in the TSX Index that advanced, 116 securities declined in value, and five stocks closed the day unchanged. The majority of the sectors, eight of the 11 sectors in the TSX Index, closed in positive territory. Gold stocks were laggards.
The TSX Index is up 2.78 per cent year-to-date.
On today's TSX Breakouts report, there are 41 stocks on the positive breakouts list (stocks with positive price momentum), and 31 stocks are on the negative breakouts list (stocks with negative price momentum).
Featured today is a dividend stock that appears on the negative price breakout list with its share price declining 7 per cent over the past month. The stock offers investors an attractive 6.4-per-cent yield. Management has been committed to returning capital to its shareholders, raising its dividend in each of the past three years. The security I am referred to is Capital Power Corp. (CPX-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Edmonton-based Capital Power is a North American power producer.
On April 13, the company announced that it has completed the acquisition of Veresen Inc.'s two gas-fired generation facilities located in Ontario. In the news release, president and chief executive officer Brian Vaasjo said, "The addition of these high-quality natural gas facilities that are under long-term contracts will enhance our contracted cash flow profile and diversify our existing asset fleet."
The prior day, management announced plans to acquire Decatur Energy Center with its power plant located in Decatur, Ala..
Mr. Vaasjo said, "The acquisition of Decatur Energy is a significant step in the execution of our growth strategy as it further strengthens our contracted cash flow profile and increases our geographical diversification. The facility has more than half of its 10-year contract term remaining with a high probability of re-contracting based on its history of re-contracting and the need for capacity in the region due to supply retirements and load growth."
To fund the acquisition, the company raised approximately $183-milion through a subscription receipt offering that closed on April 24.
The company will be reporting its first-quarter financial results before the market opens on May 1.
Dividend policy
The company pays its shareholders a quarterly dividend of 39 cents per share, or $1.56 per share on a yearly basis. This equates to an annualized dividend yield of 6.4 per cent.
Management is committed to growing its dividend, announcing dividend increases annually for the past three years- in July 2016, July 2015, and July2014.
Analysts' recommendations
There are 13 firms providing research coverage on the company, of which six analysts have buy recommendations, five analysts have hold recommendations, and one analyst has an "underweight" recommendation (at Credit Suisse). One analyst remains restricted on the stock.
Revised recommendations
Analysts' expectations have increased.
On Monday, several analysts officially increased their target prices with the closing of its recent subscription receipt offering. Ben Pham, the analyst from BMO Capital Markets, raised his target price to $28 from $26. Linda Ezergailis, the analyst from TD Securities, raised her target price by $1 to $26. Patrick Kenny, from National Bank Financial, also increased his target price by a dollar, to $31. Robert Catellier, the analyst from CIBC World Markets, increased his target price by $2 to $27. Jeremy Rosenfield, the analyst from Industrial Alliance Securities, bumped his target price to $30 from $28.50. Ian Gillies, from GMP, tweaked his target price to $31 from $30.50.
Financial forecasts
Solid earnings growth is anticipated for the company. The Street is forecasting earnings before interest, taxes, depreciation and amortization (EBITDA) of $585-million in 2017, up from $520-million in 2016, with EBITDA forecast to reach $644-million in 2018. The consensus earnings per share estimates are $1.37 for 2017 and $1.57 for 2018.
The company has experienced positive earnings revisions. For instance, four months ago, the consensus EBITDA forecasts were $527-million for 2017 and $546-million for 2018.
Valuation
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 7.3 times the consensus 2018 estimate, below the three-year historical average of 8.6 times.
The average 12-month target price is $27.75, implying upside potential of just under 15 per cent over the next 12 months. Analysts have target prices ranging from a low of $22 to a high of $31. Individual target prices supplied by 11 firms are as follows in numerical order: $22, two at $26, three at $27, $28, $29.50, $30, and two at $31.
Insider transaction activity
On March 1, Brian Vaasjo, the president and chief executive officer, exercised his options and sold the corresponding number of shares (171,060 shares) that same day at a price of $25.50 per share.
Chart watch
The share price has been under pressure in recent weeks, falling 7 per cent over the past month. Year-to-date, the stock price is up 4 per cent.
On Monday, the relative strength index was 28, suggesting the stock price was in oversold territory. Generally, a reading at or below 30 indicates an oversold condition.
The share price has overhead resistance around $26.
Should the stock price continue to drift lower, there is downside support around $24. After that, there is support around $23, which is close to its 200-day moving average (at $22.79). Failing that, there is strong support around $22.
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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.