In terms of earnings releases today, there are two companies in the S&P/TSX composite index, Metro Inc. and Loblaw Companies Ltd., which are scheduled to report their quarterly numbers.
Looking at commodity action this morning, the price of oil is retreating after soaring over 5 per cent on Tuesday. Weekly oil inventory data will be released by the U.S. Energy Information Administration today, which could create further volatility in the price of oil. The prices of natural gas, gold, and silver are all relatively stable, and the price of copper is down mildly.
Briefly recapping Tuesday's performance, in the U.S., the Dow Jones Industrial Average rallied 54 points, once again closing at an all-time record high. In Canada, the S&P/TSX composite index gained 158 points, or 1.08 per cent. There were 187 securities in the TSX Index that advanced, 57 securities declined in value, and three stocks closed the day unchanged. In terms of sectors, nine of the 11 sectors closed with gains, led by strength in the energy and materials sectors.
The S&P/TSX composite index is down 0.21 per cent month-to-date, up 0.21 per cent quarter-to-date, and up 13.42 per cent year-to-date.
On today's TSX Breakouts report, there are 33 stocks on the positive breakouts list (stocks with positive price momentum), and 25 securities on the negative breakouts list (stocks with negative price momentum).
Discussed today is a stock that appeared on the negative breakouts list on Tuesday. Analysts believe that, in time, the share price will regain its positive price momentum. Analysts' target prices suggest a potential price return ranging between 24 per cent and 49 per cent over the next year. The security highlighted is Clearwater Seafoods Inc. (CLR-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Nova Scotia-based Clearwater is a vertically integrated company supplying customers with a variety of seafood such as scallops, lobsters, clams, coldwater shrimps, and crabs.
The company is a dominant player in the industry and is the largest holder of shellfish licenses and quotas in the country. There are high barriers to entry in this market as Canadian regulatory authorities required companies to own licenses, and new licenses are seldom granted. Licenses and quotas limit competition, allowing Clearwater to maintain its industry leadership.
The company has a global customer base with no individual customer representing more than 7 per cent of the company's sales.
In June, the company completed a bought deal financing, raising approximately $35-million by issuing over 2.5-millin shares at a price of $13.90 per share.
Before the market opened on November 10, the company reported third-quarter financial results that fell short of the Street's expectations sending the share price plunging 12 per cent that day on very high volume. Over 470,000 shares traded that day, well above the two-month historical daily average trading volume of approximately 77,000 shares. The company reported sales of $189.5- million, up 29 per cent year-over-year, (beneftting from the acquisition of Macduff Shellfish Group, which was completed in October 2015), but below the consensus estimate of $198-million. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $45.2-million, up 16 per cent year-over-year, but below the Street's forecast of $49.6-million. Adjusted earnings per share was 30 cents, below the consensus estimate of 37 cents.
Management's outlook was positive noting that global seafood demand exceeds supply, and noting in the Management's Discussion and Analysis that, "Demand has been driven by growing worldwide population, shifting consumer tastes towards healthier diets, and rising purchasing power of middle class consumers in emerging economies. The supply of wild seafood is limited and is expected to continue to lag behind the growing global demand."
On the third-quarter conference call, Ian Smith, the chief executive officer, stated that the believes the company may see, "significant year-over-year improvement" in the Canadian scallop quota next year. Investors appear to be taking a "wait-and-see" approach.
Dividend policy
The company pays shareholders a quarterly dividend of 5 cents per share, or 20 cents on a yearly basis. This equates to an annualized dividend yield of 1.65 per cent. Management has maintained its dividend at this level since late 2015.
Valuation
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 8.4 times the 2017 consensus estimate, in-line with its three-year historical average of 8.2 times.
Analysts' recommendations
This small cap stock, with a market capitalization of $774-million, is covered by several large financial institutions. According to Bloomberg, four analysts have issued research reports in 2016, all of which are 'buy' recommendations. These four firms are Beacon Securities, BMO Capital Markets, Cormark Securities, and Scotia Capital.
The average one-year target price is $16.13, implying the shares have 33 per cent upside potential over the next 12 months. Individual target prices in numerical order are: $15, $15.50, $16, and $18.
The Street is forecasting sales of $628.5-million in 2016, rising 4.5 per cent to $656.5-million in 2017. The consensus EBITDA estimate is $136-million in 2016, climbing 9 per cent to $148.5-million in 2017. The Street is forecasting earnings per share of 62 cents in 2016, and anticipated to rise over 24 per cent 77 cents in 2017.
Earnings forecasts have been revised principally lower since the beginning of the year. On January 1, the consensus sales estimates were $648-million for 2016 and $677-million for 2017. The consensus EBITDA estimates were $139-million for 2016 and $147-million for 2017. Finally, the earnings per share estimates were 82 cents in 2016 and 91 cents in 2017.
Chart watch
The stock's multi-year uptrend stalled in 2015. The closing share price on December 21, 2014 was $11.86 and the share price closed at $12.10 on Tuesday. Year-to-date, the stock price is relatively flat, up just 0.9 per cent.
Over the past two years, the share price has been locked in a trading range, largely between $10 and $15, and is currently trading in the middle of that range.
There is initial overhead resistance around $14, close to its 50-day moving average (at $13.79), and strong resistance at $15.
There is initial support around $12. Failing that, there is support at $11, and strong support at $10.
The relative strength index is at 33, suggesting the shares are nearing oversold territory. Generally, a reading at or below 30 indicates an oversold condition.
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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.