Wednesday’s TSX breakouts: This stock is holding its value during market turbulence with 15 ‘buy’ calls

The volatility in the markets is likely to persist in the days ahead leading to the interest rate announcement on September 21 by the U.S. Federal Reserve.

Given that buyers are likely reluctant to purchase securities ahead of the rate decision announcement, market action may be tilted to the downside. In addition, global economic growth concerns are resurfacing. For now, the best position may be to take some profits off the table and accumulate cash as stock prices may continue to drift lower, presenting investors with future buying opportunities.

On Tuesday, major U.S. equity markets gave back most or all of Monday's gains. In the U.S., the Dow Jones Industrial Average fell 1.41 per cent, the S&P 500 Index dropped 1.48 per cent, and the Nasdaq composite retreated 1.09 per cent.

In Canada, the S&P/TSX composite index plunged 248 points, or 1.70 per cent to close at 14,349. Losses were led by the energy sector with the price of oil falling 3 per cent. There were just 23 securities in the TSX Index that advanced, 216 securities declined in value, and one stock closed the day unchanged.

The S&P/TSX composite index is down 1.70 per cent month to date, up 2.02 per cent quarter to date, and the year-to-date gain has slipped to 10.29 per cent.

Given the market slide, on today's TSX Breakouts report, the number of securities on the positive breakouts list (stocks with positive price momentum), has fallen to six, while the number of securities appearing on the negative breakouts list (stocks with negative price momentum) has expanded to 61 .

Discussed today is a stock that over the past few days, during this period of increasing market turbulence, has been holding its ground relative to other stocks. If the share price does pullback due to market weakness, this may mark a buying opportunity. The security highlighted today is Waste Connections Inc. (WCN-T).

In 2015, when the U.S. central bank announced a rate hike on Dec. 16, in anticipation of a rate hike, during the period from Monday November 2 until Friday December 18, the share price for Waste Connections fell 2 per cent, while the industrials sector of the S&P/TSX composite index declined 4 per cent.

A brief outline is provided below that may serve as a springboard for further fundamental research.

The company

Waste Connections', formerly known as Progressive Waste Solutions Ltd., core business offers solid waste collection, solid waste disposal and transfer, and solid waste recycling services. In the U.S., the company operates in 40 states and the District of Columbia, and in Canada, it provides services in six provinces. In the second quarter, solid waste collection and solid waste disposal and transfer represented 61 per cent and 31 per cent, respectively, of total revenue. In terms of geographical revenue breakdown, during the second quarter, 32.5 per cent of total revenue was from western U.S. states (Alaska, California, Idaho, Montana, Nevada, Oregon, Washington and western Wyoming), and 19.6 per cent was from eastern U.S. regions (Illinois, Iowa, Kentucky, Maryland, Massachusetts, Michigan, New Jersey, New York, North Carolina, Pennsylvania, South Carolina, eastern Tennessee, Vermont, Virginia, Wisconsin and the District of Columbia).

After the market closed on Aug. 3, the company reported better-than-expected second quarter financial results. Revenue was $727.6-million, up from $531.3- million last year, and ahead of the $712.9-million consensus estimate. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $233.6-million, up from $177.7-million last year, and surpassing the Street's forecast of $225-million. The share price climbed 3.8 per cent the following trading day on high trading volume.

In the second quarter earnings press release, Ronald Mittelstaedt, the chief executive officer and chairman provided a postiive growth outlook stating, "Acquisition dialogue remains robust, while continued strength in free cash flow provides the ability to fund both additional growth and return of capital to shareholders. To that end and as also announced today, our board authorized a share repurchase program for up to 5 per cent of our outstanding shares over the next 12 months."

During the quarter, the company completed the merger between Progressive Waste Solutions Ltd. and Waste Connections Inc.. Within the first year, the transaction is expected to generate $50-million in annual cost savings, and be more than 20 per cent accretive on an adjusted free cash flow per share basis.

Dividend policy

The company pays shareholders a quarterly dividend of 14.5 cents (U.S.) per share, or 58 cents per share yearly. This equates to an annualized dividend yield of 0.76 per cent.

Management is committed to returning capital to shareholders. The company has increased the dividend each calendar year since 2012.

Valuation

According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of over 12 times the 2017 consensus estimate.

Insider transactions

A number of insider transactions have occurred in recent months- all sells. Darrell Chambliss, the chief operating officer, sold 2,000 shares at a price of $77.4158 (U.S.) per share on August 17. William Razzouk, a member on the Board of Directors, sold 4,400 shares at a price of $78.6883 (U.S.) per share on August 10. James Little, Senior Vice President, Engineering and Disposal, sold 3,000 shares at a price of $70.6022 (U.S.) per share on June 6. Patrick Shea, Senior Vice President, General Counsel and Secretary, sold 5,000 shares at a price of $73.05 (U.S.) per share on June 10. This information can be found on the website www.sedi.ca.

Analysts' recommendations

According to Bloomberg, so far this year, 19 analysts have issued research reports on this company, 15 of which are 'buy' recommendations and the remaining four are 'hold' recommendations.

Analysts' target prices range from a low of $68 (U.S.) to a high of $89 (U.S.). The average one-year price target is $83.98 (U.S.) or $109.87 (Cdn.), suggesting the stock price could appreciate nearly 10 per cent over the next 12 months.

The consensus EBITDA estimate is $1.05-billion (U.S.) in 2016, and forecast to rise over 30 per cent to $1.37-billion (U.S.) in 2017.

Chart watch

This large-cap industrial stock is the second best performing stock in the industrials sector of the S&P/TSX composite index year-to-date with a 48 per cent price return. Only Westshore Terminals Investment Corp. (WTE-T) has delivered a higher price return so far this year.

Should market weakness pull the stock price down, there is initial downside support around its 50-day moving average at $98.68 (Canadian). Failing that, there is support around $90, and then at $85, which is close to its 200-day moving average at $85.53.

Right now, shares of Waste Connections are in neutral territory, neither overbought nor oversold, with the relative strength index at 51. Generally, a reading at or above 70 indicates an overbought condition. While a reading at or below 30 represents an oversold condition.

===

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.

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 indices that have a minimum market capitalization of $200-million. Securities appearing on the list 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.