Friday’s TSX breakouts: This high-flying stock has 13 ‘buy’ calls

Today, the U.S. September non-farm payrolls report was slightly below expectations, coming in at 156,000 compared to the Bloomberg median estimate of 172,000.

The unemployment rate ticked up to 5 per cent from 4.9 per cent last month. The number is consistent with a "Goldilocks" scenario, the jobs figure was not too hot but not too cold. This figure suggests a December rate hike by the U.S. Federal Reserve is still on the table.

Equity markets were stagnate on Thursday as investors awaited the U.S. non-farm payrolls report. The Dow Jones Industrial Average fell 0.07 per cent, the S&P 500 Index advanced 0.05 per cent, and the Nasdaq composite index declined 0.17 per cent.

In Canada, the S&P/TSX composite index lost 15 points, or 0.10 per cent to close at 14,596. Energy stocks continued to surge higher given the strength in the price of oil, which crossed over $50 (U.S.) a barrel. There were 115 securities in the TSX Index that advanced, 128 securities declined in value, and four stocks closed the day unchanged.

The S&P/TSX composite index is down 0.89 per cent month to date, and up 12.19 per cent year to date.

On today's TSX Breakouts report, there are 47 securities on the positive breakouts list (stocks with positive price momentum), and 70 securities on the negative breakouts list (stocks with negative price momentum).

Discussed today is a stock that appeared on the positive breakouts list a few days ago. The share price rallied 5.5 per cent on Thursday on very high volume with over 8-million shares traded. The historical two-month average daily trading volume is approximately 2.5-million shares. The stock discussed today is Air Canada (AC-T).

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

The company

Air Canada is the country's largest airline.

There is seasonality in the business with the upcoming third-quarter being the strongest quarter. The company is schedule to report its third-quarter financial results on November 7. The Street is forecasting earnings per share of $2.53.

In July, the company reported better-than-expected second quarter financial results. Air Canada reported record earnings before interest, taxes, depreciation, amortization, impairment and aircraft rent (EBITDAR) of $605-million, and adjusted earnings per share (EPS) was 72 cents surpassing the consensus estimate of 60 cents.

Management provided the following operational targets: EBITDAR growth of between 4 per cent and 8 per cent for 2016 compared to the previous year, EBITDAR margins of between 15 per cent and 18 per cent, adjusted operating cost per available seat mile (CASM) to decline between 2.75 per cent and 3.75 per cent from the prior year, and return on invested capital (ROIC) to be between 13 per cent and 16 per cent during 2016 to 2018.

The company's significant capacity expansion has been a concern for some investors and analysts.

Dividend policy

The company does not pay shareholders a dividend.

Valuation

Analysts frequently value the stock on an enterprise value-to-EBITDAR or a price-to-earnings (P/E) basis. According to Bloomberg, the stock is trading at a P/E multiple of 3.5 times the 2017 consensus estimate, which is below its three-year historical average of 3.8 times, and below its peak of 6 times during this period, suggesting there is room for further multiple expansion.

Analysts' recommendations

According to Bloomberg, there are 13 'buy' recommendations, three 'hold' recommendations, and two 'sell' recommendations.

Target prices from analysts are diverse. The average one-year target price is $14.50, which implies approximately 16 per cent upside potential over the next 12 months. Individual target prices provided by 16 firms in numerical order are as follows: $6.50, $8.25, $10, $11, two at $13, $18, $18.72, $13, two at $14, $15, $16, $17, $21,and $23.

The consensus EPS estimates are $3.76 in 2016, and $3.55 in 2017.

Earnings estimates have been rising in recent months. For instance, just prior to reporting its first quarter financial results, the consensus EPS estimate was $3.22 for 2016 and $3.01 for 2017.

Chart watch

The share price has nearly doubled in value, bouncing off its 2016 low of $6.81 set back in February. Year-to-date, the share price is up over 22 per cent, and over the past week alone, the share price has soared 23 per cent.

Given the recent parabolic move, the shares are in overbought territory with the relative strength index at 86. Generally, a reading at or above 70 indicates an overbought condition.

The stock is approaching resistance around $13, and after that there is overhead resistance at $14.50, when the stock price peaked in June 2015.

In terms of downside support, there is support at $10, and failing that around the $9 level, which is near both its 50-day moving average (at $9.40) and 200-day moving average (at $8.94).

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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.