In terms of news releases, the Bank of Canada will be announcing its interest rate decision at 10 a.m. (ET). The overnight rate is expected to remain unchanged at half a per cent. After the market closes, Canadian Pacific Railway Ltd. (CP-T) will be releasing its fourth quarter financial results. The Street is expecting earnings per share of $3.12.
In the U.S., key announcement include weekly mortgage applications data, inflation figures for the month of December, along with December industrial production data.
This morning, the prices of oil and natural gas are both under some pressure, each falling by over 1 per cent. The weekly oil inventory report released by the U.S. Energy Information Administration normally on Wednesday, will be released on Thursday instead due to Monday's holiday (Martin Luther King Jr. day).
Also of note, Fed Chair, Janet Yellen, will be delivering a speech on monetary policy today.
Briefly recapping Tuesday's performance, major North American stock markets all closed in the red.
In the U.S., the Dow Jones Industrial Average lost 0.30 per cent, as did the S&P 500 index. The Nasdaq composite index fell 0.63 per cent.
Turning to Canada, the S&P/TSX composite index closed down 38 points, or 0.25 per cent, led by weakness in the industrials and financials sectors. Five of the 11 sectors in the Index closed higher with strength coming from the consumer staples, utilities, energy, and real estate sectors. There were 127 securities in the TSX Index that advanced, 118 securities declined in value, and five stocks closed the day unchanged.
Month-to-date, the TSX Index is up 1.01 per cent.
Also worthy of mention is the strengthening Canadian dollar relative to the U.S. dollar. On Tuesday, the Loonie rallied 1 per cent, rising to 76.7 cents from 75.9 cents.
On today's TSX Breakouts report, there are 30 stocks on the positive breakouts list (stocks with positive price momentum) and five securities on the negative breakouts list (stocks with negative price momentum).
The security highlighted today may soon appear on the positive breakouts list – Enercare Inc. (ECI-T). It offers investors an attractive 5 per cent yield combined with double-digit upside expectations. The stock has recently experienced a number of positive technical signals.
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Toronto-based Enercare provides water heaters, furnaces, air conditioners and HVAC (heating, ventilation, and air conditioning) rental products, as well as services such as protection plans to its customers. In addition, EnerCare owns EnerCare Connections, a leading sub-meter provider for apartments and condominiums, and through its Triacta division, manufactures sub-meters. Enercare has operations in both Canada and the United States, serving approximately 1.6 million customers.
Before the market opened on November 10, the company reported better-than-expected third-quarter financial results. Enercare reported adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $79.6-million, surpassing the consensus estimate of $74-million, and up 30 per cent year-over-year. The recent acquisition of Service Experts was a strong contributor to the company's earnings growth.
Bill 59 was also addressed in the earnings release. John Macdonald, the chief executive officer, stated, "I would also like to commend the Ontario Government for introducing the Putting Consumers First Act, which seeks to ban door-to-door sales of household appliances such as water heaters, furnaces and air conditioners. Unsolicited door-to-door sales have been a longstanding problem in our industry and Enercare looks forward to assisting in the legislative process so the bill can pass, and the necessary regulations can be implemented quickly, to better protect our customers and Ontario consumers from aggressive sales tactics. If passed as described, we believe that Bill 59 will positively impact our rental water heater, HVAC and water treatment systems business."
The share price rallied 3 per cent that trading day.
Dividend policy
The company pays its shareholders a monthly dividend of 7.7 cents per share, or 92 cents on a yearly basis. This equates to an annualized dividend yield of 5 per cent. Management has announce a dividend increase every calendar year since 2011 with two hikes announced in 2013.
Valuation
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 9.4 times the 2017 consensus estimate, which is slightly above its three year historical average of 8.7 times, but below its peak multiple of 11 times during that time.
The average one-year target price is $21.33, suggesting the shares have a potential price return of over 15 per cent over the next twelve months.
Target prices range from a low of $20 to a high of $22.50. Individual target prices supplied by six firms are as follows in numerical order: $20, two at $21, $21.50, $22, and $22.50.
Analysts' recommendations
According to Bloomberg, this mid-cap stock with a market capitalization of $1.9-billion, is covered by seven analysts. Since November, six analysts have issued research reports, four analysts have 'buy' recommendations and two analysts have 'hold' recommendations. The seven firms providing research coverage are as follows in alphabetical order: Desjardins Securities, EVA Dimensions, Laurentian Bank Securities, National Bank Financial, RBC Capital Markets, Scotia Capital, and TD Securities.
Earlier this week, Damir Gunja, the analyst from TD Securities, increased his recommendation to a 'buy' from a 'hold', and raised his target price to $21 from $20.
In November, after the company reported better-than-expected third-quarter financial results, several analysts revised their target prices higher. For instance, Nelson Ng, the analyst from RBC Capital Markets, bumped his target price to $21 from $20. In addition, George Doumet, the analyst from Scotia Capital, lifted his target price to $20 from $19. Lastly, Trevor Johnson, the analyst from National Bank Financial, raised his target price to $22.50 from $20.50.
Earnings forecasts
The consensus EBITDA estimate is $276-million in 2016, rising 11 per cent to $306-million in 2017. The Street is forecasting EBITDA of $328-million in 2018.
The stock has experienced steady positive earnings revisions. For instance, one year ago, the consensus EBITDA estimates were $244-million for 2016 and $259-million for 2017. Halfway through the year, on July 2, the consensus EBITDA forecasts were $267-million for 2016 and $301-million for 2017.
Chart watch
Year to date, the share price is up 3.5 per cent.
From October 2015 through to April 2016, the stock price traded sideways, principally between $15 and $16. From May 2016 through to October 2016, the share price broke out to the upside, trading up to $20 from $16. The share price subsequently experienced a 50 per cent retracement, trading down to $18 and held at this level – a key support level.
On Tuesday, the share price surged 2.8 per cent on high volume with over 780,000 shares traded. The two-month historical daily average trading volume is approximately 485,000 shares. Given the recent positive price momentum, the share price is now trading above both its 50-day moving average (at $18.12) and 200-day moving average (at $17.66) – a positive technical indicator. In addition, the Chaikin Money Flow oscillator turned positive this month– a bullish signal.
The share price has initial overhead resistance around $20, and initial downside support around $18, close to its 200-day moving average. Failing that, there is strong support around $16.
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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.