Wednesday’s TSX breakouts: This steadily rising defensive growth stock features a 5.5% yield

Concerns surrounding the United Kingdom potentially leaving the European Union have increased market volatility.

On Tuesday, the S&P/TSX composite index declined for the fifth consecutive day, falling 110 points, or 0.78 per cent. Over the past five trading sessions, the TSX index has erased 3.4 per cent of its year-to-date gains. On Tuesday, it was a sea of red with 178 stocks declining, only 51 stocks advancing, and five securities closed unchanged for the day.

The list of securities on the positive breakouts list (stocks with positive price momentum) continues to dwindle, falling to just six stocks, and there are now 27 securities on the negative breakouts list (stocks with negative price momentum).

Discussed today is a defensive stock that has been steadily advancing, Enercare Inc. (ECI-T), which is closing in on its record high closing price. The attractive 5.5-per-cent dividend yield provides the stock with downside support.

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 over a million customers.

On May 13, the company reported first-quarter financial results that fell slightly short of expectations. Acquisition adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $58.1-million, below the consensus forecast of $60.7-million. The stock price closed relatively unchanged that day, falling 5 cents to close at $16.28.

Management is optimistic for 2016, stating in the first-quarter earnings press release that, "Our main priority for the business in 2016 is to grow EBITDA. In order to grow EBITDA in the home services business, our key priority is to continue to grow the number of rental contracts. We believe that we have the opportunity to continue the improved results experienced in the second half of 2015 by growing the number of contracts in excess of attrition throughout 2016."

Dividend policy

Management remains committed to its dividend. In May, the company announced a 10-per-cent dividend increase to its monthly dividend, raising it to 7.7 cents per share from 7 cents per share. Management has announce a dividend increase every calendar year since 2011. The company has raised the dividend seven times in the past six years, announcing two dividend increases in 2013.

Valuation

According to Bloomberg, the stock trades at an enterprise value to earnings before interest, taxes, depreciation and amortization (EV/EBITDA) multiple of 8.2 times the 2017 consensus estimate, above its historical three-year average of 7.5 times. Over the past three years, the EV/EBITDA multiple peaked at just under 9 times.

Analysts' recommendations

According to Bloomberg, the one year price target is $18.13, which is based on two buy recommendations and two hold recommendations. This suggests the share price may potentially rise approximately 9 per cent. Individual price targets are as follows: three at $18 and one at $18.50.

The consensus EBITDA estimate is $267-million in 2016, rising 13 per cent to $301-million in 2017.

Chart watch

The stock's chart is positive. The 50-day moving average and 200-day moving average are both rising with the share price trading above both moving averages. The share price is steadily approaching its record closing high. Year-to-date, the stock price has appreciated 4.5 per cent, in addition to providing investors with attractive dividend income.

The stock faces initial overhead resistance around $18. There is initial downside support around $16, near its 50-day moving average (at $16.08), and failing that, around $15.50, close to its 200-day moving average (at $15.43).

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.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.

Below is a list of securities principally from the S&P/TSX composite index and the S&P/TSX Small Cap index that are technically breaking out, reaching new 55-day highs or lows. Securities on the positive breakouts list have displayed positive price momentum during this period. Securities on negative breakouts list have experienced negative price momentum.