On Thursday, major North American stock markets closed with slight losses.
In the U.S., the Dow Jones Industrial Average lost 0.11 per cent, the S&P 500 index declined 0.22 per cent, and the Nasdaq composite index fell 0.22 per cent.
In Canada, the S&P/TSX composite index declined 83 points, or 0.53 per cent, with nine of the 11 sectors closing lower. There were 84 securities in the TSX Index that advanced, 165 securities declined in value, and one stock closed the day unchanged.
Year-to-date, the TSX Index is up 1.72 per cent. In the U.S., the Dow Jones Industrial Average is up 5.85 per cent year-to-date, the S&P500 index is up 6.95 per cent, and the Nasdaq composite has rallied 13.61 per cent.
On today's TSX Breakouts report, there are 36 stocks on the positive breakouts list (stocks with positive price momentum), and 27 stocks are on the negative breakouts list (stocks with negative price momentum).
Featured today is a security that appeared on the positive breakouts list earlier this week. The stock is up over 33 per cent year-to-date with analysts forecasting a further 29 per cent upside. All analysts covering the stock have buy recommendations. Another major supporter for the company is the Caisse de dépôt et placement du Québec with an ownership position of approximately 19 per cent. Furthermore, insiders have been stepping into the public market and purchasing shares. The security I am referring to is 5N Plus Inc. (VNP-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Montreal-based 5N Plus produces specialty metal and chemical products with manufacturing facilities in North America, Europe, and Asia. Its products include metals such as bismuth, gallium, germanium, indium, tellurium, and selenium, which are used in pharmaceutical, electronic, and industrial markets.
After the market closed on May 2, the company reported solid first quarter financial results. All financial figures are expressed in U.S. dollars. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $6.1-million, relatively in-line with the consensus estimate of $6.15-million. Earnings per share was 5 cents, surpassing the consensus estimate of 2 cents.
Management is focused on improving margins. On the first quarter earnings conference call management indicated, "During the quarter, 5N Plus walked away from certain contracts which did not meet the company's minimum return requirements." Gross margins increased to 23.1 per cent from 19.4 per cent reported during the same period last year. Richard Perron, the company's chief financial officer, indicated on the conference call, "We still expect to see improvement to our gross margin going forward."
The share price rallied over 10 per cent the following trading day.
Returning capital to shareholders
The company does not pay its shareholders a dividend. However, management has been actively repurchasing shares as part of its share buyback program. During the first quarter, the company repurchased 352,396 shares at an average price per share of $1.37.
Analysts' recommendations
Analysts are bullish on the stock. 5N Plus, with a market capitalization of $199-million, is covered by three analysts on the Street, all of which have buy recommendations.
The three firms providing research coverage on the company are as follows in alphabetical order: Cormark Securities, Laurentian Bank Securities, and National Bank Securities.
Revised recommendations
This month, two analysts revised their expectations with both analysts moving their forecasts higher. Rupert Merer, the analyst at National Bank Financial, increased his target price to $2.75 from $2.40, and Nick Agostino from Laurentian Bank Securities lifted his target price to $3 from $2.75.
Financial forecasts
The Street is forecasting revenue of $241-million (U.S.) in 2017, rising 9 per cent to $263-million the following year. The consensus EBITDA estimates are $25-million in 2017, increasing to $28-million in 2018. Management has provided adjusted EBITDA guidance, calling for between $21-million and $27-million in 2017. The consensus earnings per share estimates are 10 cents in 2017, and forecast to increase to 14 cents in 2018.
Earnings revisions have been relatively minor. For instance, two months ago, the consensus EBITDA estimates were $25-million for 2017 and $27-million for 2018. The consensus earnings per share estimates were 10 cents for 2017 and 13 cents for 2018.
Valuation
According to Bloomberg, the stock is trading at a price-to-earnings multiple of 12.5 times the 2018 consensus estimate, below its three-year historical average of 13.2 times. On an enterprise value-to-EBITDA basis the stock is trading at a multiple of 4.9 times the 2018 consensus estimate, below with its three-year historical average of 5.8 times.
The average 12-month target price is $3.08, implying the share price has 29 per cent upside potential over the next year. Individual target prices are as follows in numerical order: $2.75, $3, and $3.50.
Insider transaction activity
Several insiders have been actively purchasing shares.
The chairman of the board of directors Luc Bertrand has been actively acquiring shares. Mr. Bertrand bought 19,900 shares at an average price per share of $2.48 on May 10, purchased 12,500 shares at an average price per share of $2.4354 on May 9, accumulated 42,600 shares at an average price per share of $2.1553 on May 5, and bought 1-million shares at an average price per share of $1.70 on February 24. Post these transactions, his portfolio's share count stood at 1,100,000 shares.
Jean-Marie Bourassa, the chairman of the audit and risk management committee, purchased 45,000 shares at an average price per share of $2.4265 on May 9. The prior day, Mr. Bourassa purchased 20,000 shares at an average price per share of $2.2719. On May 5, he accumulated 25,900 shares at an average price per share of $2.20, and on February 24, he purchased 250,000 shares at an average price per share of $1.70. After these transactions, his portfolio's position was 972,100 shares.
In addition, in a news release issued on March 2, the Caisse de dépôt et placement du Québec reportedly purchased 8,700,000 shares on the secondary market. Christian Dubé, the executive vice-president at the Caisse de dépôt et placement du Québec remarked, "The transaction is aligned with our strategy to support Québec companies which are active in global markets and prioritize innovation as a key part of their development."
Chart watch
Year to date, this technology stock has seen its share price rally over 33 per cent.
Given its parabolic move with the stock price rising over 30 per cent over the past three weeks, the share price may be due for a pause in order to digest these gains and we could see some price weakness. The relative strength index is at 71, suggesting the stock is in overbought territory. Generally, a reading at or above 70 indicates an overbought condition.
Should the share price retreat, there is initial support around $2.30, and then around $2.20. Failing that, there is strong technical support near $2, which is close to its 50-day moving average (at $1.97).
On continued positive price momentum, the share price is has major overhead resistance around $3.
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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.