On Monday, major North American stock markets all closed in the green with gains.
In the U.S., the Dow Jones Industrial Average increased 0.01 per cent, the S&P 500 index gained 0.07 per cent, and the Nasdaq composite index climbed 0.05 per cent.
In Canada, the S&P/TSX composite index rose 64 points, or 0.41 per cent. There were 190 securities in the TSX Index that advanced, 53 securities declined in value, and eight stocks closed the day unchanged. Most sectors, nine of the 11, closed in positive territory led by strength in the healthcare sector with the share price of marijuana producer, Canopy Growth Corp (WEED-T), soaring over 6 per cent.
The TSX Index is up 2.90 per cent year-to-date.
On today's TSX Breakouts report, there are 61 stocks on the positive breakouts list (stocks with positive price momentum), and eight stocks are on the negative breakouts list (stocks with negative price momentum).
Featured today is a company that is a top performing stock in the energy sector, rising over 48 per cent so far this year. All seven analysts who cover the company have buy recommendations on the stock, and the consensus target price suggests 37-per-cent upside potential for the share price over the next year. However, on a technical basis, given the recent sharp rally, in the near-term, the positive share price momentum may pause, with the stock price potentially pulling back to a level between $2.50 and $2.75. The security I am referred to is Yangarra Resources Ltd. (YGR-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Calgary-based Yangarra Resources is a junior oil and gas company with operations focused on the Cardium in central Alberta.
After the market closed on March 15, the company reported better-than-expected fourth-quarter financial results. Cash flow per share came in at 9 cents, surpassing the consensus estimate of 7 cents. In 2016, production came in at 2,956 barrels of oil equivalent per day (boe/d). For 2017, management is forecasting annual average production of between 4,500 boe/d to 5,000 boe/d, and cash flow from operations of between $45-million and $50-million.
In the recent Management's Discussion and Analysis, management provided the following outlook, "The hedging program has provided excellent coverage in this low commodity environment which together with many other cost cutting initiatives will assist with keeping the balance sheet strong. Yangarra continues to make all capital allocation decisions based on maximizing full cycle economics. The company's board of directors has approved an initial capital budget of $50-million for 2017. The 2017 capital budget includes drilling of 15 ERW's (extended-reach wells) in the Cardium, five wells in the first quarter and 10 wells in the second half."
Dividend policy
Management is focused on growth. Consequently, the company does not pay its shareholder a dividend.
Analysts' recommendations
There are seven firms providing research coverage on this small cap stock with a market capitalization of $228-million. The firms providing research coverage are as follows in alphabetical order: Acumen Capital, AltaCorp Capital Inc., Clarus Securities, Industrial Alliance Securities, Paradigm Capital, PI Financial Corp., and Raymond James.
All seven analysts who cover the stock have buy recommendations.
Financial forecasts
The consensus cash flow per share estimates are 59 cents in 2017 and 83 cents in 2018. Cash flow per share came in at 22 cents in 2016.
The company has had positive earnings revisions. For instance, three months ago, the consensus cash flow per share estimates were 41 cents for 2017 and 66 cents for 2018.
Valuation
The stock can be valued on an enterprise value-to-debt adjusted cash flow basis.
The average one-year target price is $3.89, suggesting there is 37 per cent upside potential in the share price over the next 12 months. Target prices range from a low of $3.50 to a high of $4.75. Individual target prices are as follows in numerical order: two at $3.50, two at $3.75, two at $4, and $4.75.
Revised recommendations
Analysts' target prices have been on the rise. In March, Michael Charlton, the analyst at Industrial Alliance Securities, raised his target price by 50 cents to $4. Ken Lin, the analyst at Paradigm Capital, raised his target price to $4 from $3.75. Trevor Reynolds, the analyst at Acumen Capital, lifted his target price to $3.75 from $3.25. Brian Purdy, the analyst at PI Financial, increased his target price to $3.75 from $3.25. Lastly, Thomas Matthews from AltaCorp Capital, increased his target price to $4.75 from $4.
Insider transaction activity
On April 5, Jim Evaskevich, the president and chief executive officer, purchased 10,000 shares at a price of $2.45 per share, bringing his share count position up to over 2.15-million shares.
In February, Lorne Simpson, the vice-president of operations, exercised his options, and on April 5, Mr. Simpson sold the corresponding number of shares, 133,333 shares, at a price of $2.75 per share.
According to the company's investor presentation from March, insider ownership was significant with management and board members collectively owing 21 per cent of its fully diluted shares outstanding.
Chart watch
This small-cap stock is not a member of the S&P/TSX composite index; however, if it was included in the TSX Index, it would be the second best performing stock year-to-date in the Index's energy sector, behind NexGen Energy Ltd. (NXE-T). Yangarra's share price is up 48 per cent so far this year.
The relative strength index is at 64, suggesting the shares are not in overbought territory despite its strong rally. Generally, a reading at or above 70 indicates an overbought condition.
The share price may need to pause in the near-term after rising 15 per cent in the past two weeks, outperforming crude oil's 11 per cent price move during this period. Furthermore, over the past couple of days, trading volume has dried up with just over 140,000 shares trading hands on Monday, well below Yangarra's three-month historical daily average trading volume of approximately 450,000 shares.
Should the share price retreat, there is initial support around $2.50, near its 50-day moving average (at $2.58). Failing that, there is support around $2.
In terms of overhead resistance, there is initial resistance around $3, and after that around $3.50.
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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.