In terms of key news releases, the Bank of Montreal and Laurentian Bank will both reported fourth quarter financial results before the market opens. In the U.S., Durable Goods Orders will be reported at 10 a.m. (ET).
On the commodity front, the price of oil is down this morning as it digests its recent stellar gains. Also trading lower is the price of copper. Meanwhile, natural gas futures contracts are trading higher, and gold and silver prices are relatively stable.
Briefly recapping Monday's performance, it was a positive start to the week for major North American equity markets.
In the U.S., the Dow Jones Industrial Average, S&P 500 Index, and Nasdaq composite closed up 0.24 per cent, up 0.58 per cent, and up 1.01 per cent, respectively.
In Canada, the S&P/TSX composite index gained 43 points, or 0.28 per cent. There were 139 securities in the TSX Index that advanced, 102 securities declined in value, and six stocks closed the day unchanged. Just over half of the sectors in the Index, seven of the 11, closed in the green, led by strength in the materials and energy sectors.
The TSX Index is up 0.08 per cent month-to-date, up 2.51 per cent quarter-to-date, and has a year-to-date gain of 16.03 per cent.
On today's TSX Breakouts report, there are 46 stocks on the positive breakouts list (stocks with positive price momentum), and just 11 securities on the negative breakouts list (stocks with negative price momentum).
Discussed today is a security that appears on the positive breakouts list. Given the strong rally in the stock price, a pullback in the share price appears in order. The security highlighted is Lundin Mining Corp. (LUN-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Lundin is a diversified base metals mining company focused on copper, nickel, and zinc production from its operations in Chile, the U.S., Portugal, and Sweden. In a Nov. 15 news release, the company announced the sale of its 24-per-cent interest in the copper/cobalt mine in the Democratic Republic of Congo, which is expected to be completed in the first half of 2017.
In terms of base metal exposures, according to a corporate presentation released last month, 65 per cent of year-to-date sales were from copper, 13 per cent from zinc, 9 per cent from nickel, 7 per cent from gold, 3 per cent from lead, and the remaining 3 per cent was listed as other.
After the market closed on Oct. 26, the company reported its third quarter financial results, reporting cash flow per share of 14 cents (U.S.) and an earnings loss of 2 cents per share. This was relatively in-line with the Street's expectations, the consensus earnings estimate was a loss of 1 cent per share and the consensus cash flow per share estimate was 16 cents. Management increased its 2016 copper production guidance to between 254,700 tonnes and 261,800 tonnes, up from its previous guidance of between 253,300 tonnes and 265,800 tonnes. The company also raised its nickel and zinc production forecasts for the year.
Paul Conibear, the chief executive officer stated, "We are pleased with our aggregate operating performance in the third quarter and year-to-date. Our operations continue to generate healthy cash flows despite the continued low commodity price environment and have enabled us to continue to improve our already strong balance sheet. Production guidance ranges have been updated and narrowed, and we look forward to increased production in the fourth quarter from Candelaria from planned higher copper head grades. The Candelaria Los Diques tailings dam facility is progressing on schedule, as are development of the Eagle East exploration access ramp and Zinkgruvan plant debottlenecking and tailings projects."
In a Nov. 30 news release, the company provided an operational outlook for the next three years, calling for copper production of between 202,000 and 216,000 tonnes in 2017, between 189,000 and 203,000 tonnes in 2018, and between 188,000 and 202,000 tonnes in 2019. Zinc and nickel production forecasts were also provided along with 2017 cash cost estimates and 2017 capital spending guidance.
Dividend policy
On Nov. 30, the company announced that its board approved the initiation of a quarterly dividend of 3 cents (Canadian) per share or 12 cents on a yearly basis. This equates to an annualized dividend yield of 1.7 per cent based on Monday's closing price. The inaugural dividend payment is expected to be made in 2017 and is anticipated to be declared when the company reports its year-end financial results in February, 2017.
Mr. Conibear remarked on the approval of a dividend policy saying, "With a significant cash balance, strong balance sheet, and ongoing cash flow from our operations, Lundin Mining is well positioned to fund future growth opportunities while providing a dividend return."
The introduction of a dividend may expand the stock's exposure to include shareholders whom only invest in dividend paying stocks.
Valuation
Analysts commonly value the stock on an enterprise value-to-EBITDA basis, price-to-cash flow basis, or price-to-net asset value basis. According to Bloomberg, the stock is trading at price-to-cash flow multiple of 6.7 times the 2017 consensus estimate, below its peak of over 8 times looking back over the past five years, but above its five-year historical average of 5.7 times.
The average one-year target price is $7.59, implying the share price may appreciate 7 per cent over the next 12 months. However, target prices vary widely, ranging from a low of $5.10 to a high of $10.50. Individual price targets provided by 16 firms since mid-November are as follows: $5.10, $6.43, $6.50, $6.75, $7, $7.25, two at $7.50, two at $7.75, three at $8, two at $8.50, and $10.50.
Analysts' recommendations
This stock, with a market capitalization of $5.1-billion (Canadian), is well covered by the Street and highly recommended by analysts. Since the mid-November, 16 analysts have issued research reports, of which 12 are 'buy' recommendations, three are 'hold' recommendations, and one is a 'reduce' recommendation from the following firms in alphabetical order: Berenberg, Canaccord Genuity, CIBC World Markets, Credit Suisse, Dundee Securities, GMP, Goldman Sachs, Haywood Securities, Handelsbanken, Laurentian Bank Securities, Macquarie, Morgan Stanley, National Bank Financial, RBC Capital Markets, Scotia Capital and TD Securities.
The Street is forecasting EBITDA of $558-million (U.S.) for 2016, rising to $707-million in 2017. The consensus cash flow per share estimates are 57 cents (U.S.) in 2016, and 79 cents in 2017.
Consensus forecasts have been rising. For instance, at the end of February, the consensus EBITDA estimates were $387-million for 2016 and $490-million for 2017, and the consensus cash flow per share forecasts were 53 cents for 2016 and 60 cents for 2017.
Chart watch
The stock price appears due for a pause given its recent stellar rally.
The share price has experienced a parabolic move following the U.S. election results, closing at $7.09 (Canadian) on Dec. 5, up 24 per cent from its closing price of $5.72 on Nov. 8. Year-to-date, the share price is up over 86 per cent.
The stock price is current trading around resistance at $7. Should the share price break materially above $7, the next overhead resistance level is around $8, and after that, around $9.
Should the share price fails to sustain its break above $7, there is downside support around $6.30, and failing that around $5.75, which is close to its 50-day moving average (at $5.74).
The relative strength index is at 68, suggesting the shares are nearing an overbought territory. Generally, a reading of 70 or higher indicates an overbought 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.