Today, there are no Canadian economic releases but it is a busy day in the U.S. ahead of Thursday's Thanksgiving holiday.
Among the key announcements are October durable goods orders, November initial jobless and continuing claims, October new home sales, and the minutes from the November Federal Open Market Committee meeting. Markets may be subdued ahead of the U.S. holiday.
Briefly recapping Tuesday's performance, major U.S. stock markets closed at record levels. The Dow Jones Industrial Average closed above 19,000 and the S&P broke above 2,200. In Canada, the S&P/TSX composite index is just 3.6 per cent away from returning to its record closing high set in September 2014. The S&P/TSX composite index gained 61 points, or 0.40 per cent. There were 156 securities in the TSX Index that advanced, 81 securities declined in value, and 11 stocks closed the day unchanged. In terms of sectors, eight of the 11 sectors closed in positive territory led by strength in the materials, industrials, consumer discretionary, and real estate segments.
The S&P/TSX composite index is up 2.12 per cent month-to-date, up 2.54 per cent quarter-to-date, and has a year-to-date gain of 16.07 per cent.
On today's TSX Breakouts report, there are 59 stocks on the positive breakouts list (stocks with positive price momentum), and just 10 securities on the negative breakouts list (stocks with negative price momentum).
Discussed today is a small cap energy stock that may be one to watch as it recently broke above a major overhead resistance level on high volume. It is just below the $200-million market capitalization screening parameter, and therefore has yet to appear on the positive breakouts list.
Keep in mind, next week, energy stocks may be volatile with the Organization of the Petroleum Exporting Countries (OPEC) meeting held on Nov. 30. The security highlighted is North American Energy Partners Inc. (NOA-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
North American Energy Partners (NAEP) is a construction and mining contractor, and provides services to companies with a focus in the Canadian oil sands. NAEP owns a fleet of equipment including trucks, excavators, dozers, loaders, graders, and compactors. Among its key customers are: Syncrude, Suncor Energy, Exxon Mobil, and Canadian Natural.
After the market closed on Nov. 1, the company reported its third-quarter financial results. Revenue came in at $48.2-million, ahead of the Street's forecast of $45.4-million. Earnings before interest, taxes, depreciation and amortization (EBITDA) was $9-million, surpassing the consensus estimate of $6.9-million. The company reported an earnings per share loss of 5 cents, ahead of the Street's expectation of a loss of 10 cents per share. The share price was relatively unchanged after reporting, increasing 2 cents to $3.91 the following trading session.
Management provided a cautiously optimistic outlook in the earnings release stating, "The deep and unusually long cyclical downturn in the oil industry is about to enter its third year and the timing of any meaningful recovery is still far from certain. It is the Company's view that the necessary rebalancing of supply and demand is well underway but the associated rise in oil prices will likely not take place linearly. Coincidental with the downturn there has been a change in both the provincial government in Alberta and the federal government. This has layered on additional uncertainty to an already uncertain situation, in which oil sands customers are making spending decisions."
Management went on to say, "The Company continues to pursue heavy civil construction contracts in the oil sands, along with a series of much broader and more robust major resource projects and infrastructure projects. The Company is excited about its organic growth potential and believes that it can capitalize on it to grow both EBITDA and free cash flow significantly over the next three years."
The company is dual-listed, trading on both the Toronto Stock Exchange and the New York Stock Exchange under the same ticker, NOA.
Returning capital to shareholders
The company pays shareholders a quarterly dividend of 2 cents per share or 8 cents on a yearly basis. This equates to an annualized yield of 1.6 per cent. Management has maintained the dividend at this level since it was initiated in early 2014.
The company has been actively repurchasing shares as part of its share buyback programs. On Aug. 9, the company began a normal course issuer bid (NCIB) and as of Sept. 30, the company had repurchased 277,100 shares on the Toronto Stock Exchange. Earlier in the year, in March 2016, the company began a NCIB for shares traded in the U.S., and by May completed the buyback program, repurchasing 1,657,514 shares at a weighted average price of $2.27 per share (U.S.)
Valuation
According to Bloomberg, the shares are trading at an enterprise value-to-EBITDA multiple of 4.2 times the 2017 consensus estimate.
Analysts' recommendations
This small-cap stock, with a market capitalization of $153-million, has coverage from several large financial institutions. There are four analysts whom have issued research reports since the beginning of the year. These firm providing research coverage are BMO Capital Markets, Canaccord Genuity, National Bank Financial, and Raymond James.
All four analysts covering the company have 'buy' recommendations. Last week, the analyst at BMO Capital Markets, Bert Powell, upgraded the stock to an "outperform" from "market perform" and raised this target price to $6 from $3.60.
The average one-year target price is $6, implying the share price may rise 22 per cent over the next 12 months. Individual target prices in numerical order are as follows: $5, two at $6, and $7.
The Street is forecasting growth for the company. The consensus revenue estimate is $218.5-million for 2016, rising over 21 per cent to $266-million in 2017. The consensus EBITDA estimate is $47-million for 2016, increasing over 13 per cent to $53.5-million in 2017.
Earnings forecasts edged higher after the company reported its third-quarter financial results. For instance, days before reporting, on October 26, the consensus EBITDA estimates were $45.7-million for 2016 and $48.6-million for 2017.
Chart watch
Year to date, the share price performance has been stellar, rising 98 per cent, and the uptrend appears to be intact.
The stock recently broke above a key overhead resistance level on high volume. The next major resistance level around $5, and after that at $6.
There is initial downside support around $4, near its 50-day moving average (at $3.84).
The relative strength index is at 74, suggesting the shares are in overbought territory. Generally, a reading of 70 or above indicates an overbought 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.