This morning, North American markets look to open in relatively neutral territory as traders have or will be closing their books for 2016 shortly.
In terms of news releases, watch for mortgage applications and existing home sales data reported out of the U.S. There are no Canadian economic announcements today.
Briefly recapping Tuesday's stock market performance, major North American equity markets all closed with gains.
In the U.S., the Dow Jones Industrial Average, S&P 500 Index, and Nasdaq composite closed up 0.46 per cent, higher by 0.36 per cent, and rose 0.49 per cent, respectively.
In Canada, the S&P/TSX composite index gained 23 points, or 0.15 per cent. There were 105 securities in the TSX Index that advanced, 139 securities declined in value, and six stocks closed the day unchanged.
The TSX Index is up 1.39 per cent month-to-date, up 3.85 per cent quarter-to-date, and has a year-to-date gain of 17.55 per cent.
Today's TSX Breakouts report is light, there are 26 stocks on the positive breakouts list (stocks with positive price momentum), and 23 securities on the negative breakouts list (stocks with negative price momentum.
Highlighted today is a dividend stock that broke out from its trading range on Tuesday on the back of a positive news announcement – Chorus Aviation Inc. (CHR-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Chorus Aviation owns Jazz Aviation, Air Canada's regional airline that provides services to many smaller communities. The company has a positive Capacity Purchase Agreement (CPA) with Air Canada, which is effective until 2025. Under the CPA, Chorus has a fixed fee arrangement with Air Canada, meaning that Chorus receives a fixed fee per aircraft regardless of how often the plane is flown. Chorus is not exposed to rising fuel prices as price increases are passed through to Air Canada.
On Nov. 9, the company reported third-quarter financial results that were solid. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $70-million, above the Street's forecast of $67-million.
On Tuesday, the company announced it was launching a regional aircraft leasing subsidiary, which sent the share price soaring over 6 per cent on significant volume. In a press release, the company announced Fairfax Financial Holdings Limited's $200-million investment in the company to establish this subsidiary.
The establishment of an aircraft leasing subsidiary will enable the company to diversify its revenues and growth opportunities. Joe Randell, the chief executive officer, stated in the news release, ""We have been building our capabilities in aircraft leasing, and are encouraged both by our successes to date and the opportunities we see in this segment. The cost effective and flexible source of capital provided by Fairfax will enable us to accelerate and strengthen our position as a leading player in this growing business segment. With this support from Fairfax, we will leverage our extensive relationships, knowledge and experience in aviation to create a regional aircraft leasing company capable of delivering a full suite of support services to customers worldwide."
Dividend policy
Chorus Aviation pays shareholders a monthly dividend of 4 cents per share, or 48 cents per year, equating to an annualized dividend yield of 6.9 per cent.
The CPA provides cash flow stability, suggesting the dividend should be sustainable.
Valuation
Analysts commonly value the stock on an enterprise value-to-earnings before interest, taxes, depreciation, amortization, and rent costs (EBITDAR) basis. Looking at the stock on a price-to-earnings (P/E) basis, according to Bloomberg, the stock is trading at a P/E multiple of 7.5 times the 2018 consensus estimate. Over the past five years, the stock has traded largely between 5.5 times and 8 times forward earnings.
The average one-year target price is $7.54, implying the share price may appreciate 9 per cent over the next 12 months. Target prices range from a low of $6.50 to a high of $9. Individual price targets in numerical order are as follows: $6.50, $7, $7.25, two at $7.50, $8, and $9.
Analysts' recommendations
This small cap industrial stock, with a market capitalization of $903-million, is well covered by the Street with seven analysts issuing research reports since November, six have 'buy' recommendations and one has a 'hold' recommendation. These seven analysts are from the following firms in alphabetical order: CIBC World Markets, Cormark Securities, National Bank Financial, Paradigm Capital, RBC Capital Markets, Scotia Capital, and TD Securities.
The consensus EBITDA estimates are $236-million in 2016, rising over 11 per cent to $263-million in 2017.
Earnings forecasts have been relatively stable for this year with positive revisions for next year. At the beginning of the year, the consensus EBITDA estimates were $237-million for 2016 and $251-million for 2017.
Chart watch
Year-to-date, the share price has increased over 20 per cent. Since March, the stock price has traded principally between $6 and $6.50. However, on Tuesday, the stock price broke out of this trading range, soaring 6.6 per cent on high volume with over 1.7-million shares traded. The historical two-month daily average trading volume is approximately 420,000 shares.
The stock price is approaching initial overhead resistance around $7. After that, there is resistance around $8 and then at $10.
There is downside support around $6, which is close to its 50-day moving average (at $6.35) and its 200-day moving average (at $6.24).
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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. This is not a stock recommendation. 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.