Today, in terms of earnings releases for Canadian stocks, these companies are all scheduled to release their quarterly results today: Capital Power Corp. (CPX-T), Ritchie Bros. Auctioneers Inc. (RBA-T), Sandstorm Gold Ltd. (SSL-T), and Waste Connections Inc. (WCN-T).
In the U.S., watch closely for Markit Manufacturing Purchasing Managers Index (PMI), Services PMI, and Composite PMI figures for February. In addition, two retail giants, Wal-Mart Stores Inc. (WMT-N) and Home Depot Inc. (HD-N), will be reporting their earnings results before the market opens.
It is a volatile morning for commodity prices. The price of oil is spiking higher, up over 1 per cent. Meanwhile, the price of natural gas futures are plunging, down by over 3 per cent, and the price of gold is down approximately 0.6 per cent at the moment.
Briefly recapping Friday's stock market returns, major U.S. equity markets closed the week on a positive note. The Dow Jones Industrial Average rallied 0.02 per cent, the S&P 500 index advanced 0.17 per cent, and the Nasdaq composite index gained 0.41 per cent.
Turning to Canada, the S&P/TSX composite index declined 26 points, or 0.16 per cent, weighted down by gold stocks. There were 100 securities in the TSX Index that advanced, 142 securities declined in value, and seven stocks closed the day unchanged.
The TSX Index is up 3.60 per cent year to-date.
On today's TSX Breakouts report, there are 59 stocks on the positive breakouts list (stocks with positive price momentum), and 18 stocks are on the negative breakouts list (stocks with negative price momentum).
As always, this column attempts to appeal to a variety of investors. Discussed today is a microcap stock, with a market capitalization of $109-million, below the $200-million minimum value on our screen for companies that are not in the S&P/TSX SmallCap Index. Despite being a microcap stock, it is covered by four analysts, one analyst is from a major firm, TD Securities. The consensus target price suggests there is 48 % potential upside over the next year. This is a stock whose share price can be volatile. The company highlighted today Geodrill Ltd. (GEO-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Geodrill is a drilling company with a modern fleet of 46 multi-purpose rigs that service mining companies with operations in west Africa. In terms of geographical revenue breakouts, in the third-quarter, 48 per cent of the company revenue stemmed from Ghana with the balance from Burkina Faso, Cote d'Ivoire, Mali and Zambia. In the company's investor presentation from September, 80 per cent of the company's customers were identified as 'senior mining top-tier customers', clientele that includes Newmont, Kinross, Semafo, and Endeavour.
Before the market opened on Nov. 14, the company reported better-than-expected third quarter financial results. The company reports its financial results in U.S. dollars. Revenue came in at $19.7-million beating the Street's expectations of $14.4-million. Earnings before interest, taxes, depreciation and amortization (EBITDA) was $4.76-million, ahead of the consensus estimate of $2.5-million. Earnings per share (EPS) came in at 4 cents, ahead of the consensus estimate of flat earnings. The stock price was relatively unchanged that day, rising a penny to $2.50.
Gross margins and EBTIDA margins are up sharply year-over-year. For instance, last quarter, the company reported gross margins of 40 per cent, up from 26 per cent reported during the same period in the previous year, and marking the third consecutive quarter in which the company has realized gross margins of 40 per cent or higher.
Management' s outlook is bright as indicated in the third-quarter Management's Discussion and Analysis, which stated, "The Company is starting to see a recovery in the mineral drilling sector as evidenced by the increase in meters drilled. In addition, regarding meter pricing, although still remaining to be competitive in the industry, the Company is witnessing prices beginning to stabilize."
As at September 9, 2016, David Harper, the president and chief executive office, held a 41 per cent ownership interest, suggesting his interests are aligned with shareholders.
The company will be releasing its fourth-quarter financial results before the market opens on Monday March 6.
Dividend policy
The company does not pay its shareholder a dividend.
Financial forecasts
The Street is forecasting revenue of $71.8-million in 2016 rising to $80.9-million in 2017. The consensus EBITDA estimate is $19.7-million in 2016, rising to $21.3-million in 2017. The consensus EPS estimates are 17 cents in 2016 and 19 cents in 2017.
Over the past six months, forecasts have been revised higher. In August 2016, the Street forecast revenue of $15.8-million for 2016 and $19.5-million for 2017. The consensus EBITDA estimates were $64.9-million in 2016 and $77.2-million the following year. The consensus EPS forecasts were 9 cents in 2016 and 14 cents in 2017.
Valuation
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 3.9 times the 2017 consensus estimate.
The consensus one-year target price is $3.75, suggesting a potential price return of 48 per cent over the next 12 months. Individual target prices provided are as follows in numerical order: two at $3.25, $3.50, and $4.50. This implies upside potential of between 30 per cent and 77 per cent over the next year.
Analysts' recommendations
This microcap stock is covered by four analysts. The stock has an unanimous "buy" recommendation.
The four firms providing research coverage are as follows in alphabetical order: Beacon Securities, Cormark Securities, Paradigm Capital, and TD Securities.
Revised target prices
After the company reported its third-quarter financial results, several analysts revised their target prices higher. David Davidson, the analyst at Paradigm Capital, increased his target price to $4.50 from $4.25. Ahmad Shaath, the analyst from Beacon Securities, increased his target price by 30 cents to $3.50. Lastly, Daryl Young from TD Securities lifted his target price to $3.25 from $2.75.
Chart watch
In 2016, the share price snapped out of a multi-year downtrend. The share price declined from the $3.50 level in early 2012 to below 50 cents per share in early 2015. The share price recovered in 2016, rising over 200 per cent during the first seven months of that year.
For the past six months, the share price appears to be consolidating, trading sideways, between $2.10 and $2.50, digesting its parabolic move experienced in early 2016.
Year to date, the share price is up 4 per cent, but the share price can be very volatile. For instance, on January 12, the share price closed at $2.40, three trading days later, the stock price was down 8 per cent, closing at $2.20. On February 2, the share price closed at $2.35 and six trading sessions later rallied 8 per cent to closed at $2.57.
In terms of key support and resistance levels, there is initial downside support at its 50-day moving average, which is at $2.37. Failing that, there is downside support around $2, near its 200-day moving average, which is at $2.04. There is upside resistance at $3, and after that around $3.50.
The share price can be volatile due to thin trading volume. The two-month historical daily average trading volume is approximately 25,000 shares.
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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.