On today's TSX Breakouts report, there are 55 stocks on the positive breakouts list (stocks with positive price momentum) and seven stocks are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a stock that may soon appear on the positive breakouts list. It has just passed the eight year mark as a publicly listed company with a stellar performance track record – operationally as well as return wise.
The company has a history of reporting better-than-expected quarterly financial results and the second half of the fiscal year is typically stronger than the first half. Consequently, the third and fourth quarter earnings announcements could result in continued earnings beats and share price appreciation. The security featured today is Dollarama Inc. (DOL-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Montreal-based Dollarama has over 1,100 stores across the country, selling a wide range of products such as seasonal items, food, school supplies, toys, pet supplies, clothing, cosmetics and household items, all at a cost of $4 or less.
Before the market opened on Sept. 7, the company reported better-than-expected second quarter fiscal 2018 results that sent the share price soaring 10.6 per cent that day. The company's fiscal 2018 year end is January 28, 2018. Reported revenue was $812-millon, up 11.5 per cent year-over year, and above the Street's forecast of $808-millon. Same store sales expanded 6.1 per cent. Gross margin increased to 39.6 per cent, up from 38.4 per cent reported during the same period last year. Earnings before interest, taxes, depreciation and amortization (EBITDA) was $209-million, well above the consensus estimate of $190-million. Earnings per share climbed to $1.15, up 31 per cent from 88 cents reported last year, and surpassing the Street's forecast of $1.04.
The number of customer transactions increased 0.2 per cent year-over-year, and shoppers spent more money per visit with the average transaction size increasing by 5.9 per cent driven by higher price point product offerings. Earlier this year, in May, the company expanded its payment processing to credit card transactions at all of its stores across Canada from its previous policy of debit or cash payments only. The convenience of paying by credit card has had a positive impact on increasing the average basket, or dollar value, each shopper spends in the store.
Management raised their guidance outlook for fiscal 2018, now expecting gross margins to come in at between 38 per cent and 39 per cent, up from its previous guidance of between 37.5 per cent and 38.5 per cent. EBITDA margins are anticipated to be between 22.5 per cent and 24 per cent, up from its earlier guidance of between 22 per cent and 23.5 per cent. Management expects to open between 60 and 70 net new stores by the end of the fiscal year.
The company is expected to report its third quarter fiscal 2018 financial results in early December. Looking back over the past seven quarters, the share price has rallied the day the company reported its quarterly results.
Returning capital to shareholders
The company pays its shareholders a quarterly dividend of 11 cents per share, or 44 cents per share on a yearly basis. This equates to a small annualized dividend yield of 0.3 per cent.
The company declared its first dividend in 2011, and has announced six dividend increases since its inception, one in each calendar year beginning in 2012 with the dividend hike announced along with the release of its fourth quarter financial results.
In addition, the company has been actively repurchasing shares as part of its share buyback program. During the first six months of fiscal 2018, the company repurchased over 2.99-million shares.
Analysts' recommendations
According to Bloomberg, 15 analysts issued research reports after the company reported its second quarter financial results, of which 12 analysts have buy recommendations and three analysts have hold recommendations.
Firms providing research coverage on the company are as follows in alphabetical order: Accountability Research, Barclays, BMO Capital Markets, Canaccord Genuity, CIBC World Markets, Credit Suisse, Desjardins Securities, Edward Jones, Industrial Alliance Securities, National Bank Financial, Raymond James, RBC Capital Markets, Scotia Capital, TD Securities, and Veritas Investment Research.
Financial forecasts
The Street is forecasting earnings per share of $4.45 for fiscal 2018, rising over 15 per cent to $5.14 in fiscal 2019.
The stock has positive earnings revisions. For instance, three months ago, the consensus earnings per share estimates were $4.33 for fiscal 2018 and $5.00 for fiscal 2019.
Valuation
According to Bloomberg, the stock is trading at a price-to-earnings multiple of 26.9 times the fiscal 2019 consensus estimate, nearing its peak multiple of over 28 times, and above its three-year historical average of 23.8 times.
The one-year consensus target price is $147.36, suggesting there is 7 per cent upside in the share price over the next 12 months. Target prices ranging from a low of $130 from analyst Jim Durran at Barclays (implying the stock is overvalued) to a high of $162 from analyst Patricia Baker at Scotia Capital (suggesting there is 17 per cent upside potential in the share price). Individual target prices provided by 14 firms are as follows in numerical order: $130, $133, two at $143, $144, $145, four at $150, $152, $154, $157, and $162.
Revised recommendations
Last month, 14 analysts raised their target prices. Among the largest increases, Keith Howlett, the analyst at Desjardins Securities raised his target price by $20 to $154. Mark Suarez from Accountability Research lifted his target price to $152 from $135. Brian Morrison from TD Securities took his target price up to $150 from $135, and Patricia Baker, the analyst from Scotia Capital, took her target price up to $162 (the high on the Street) from $143.
Insider transactions
So far this year, not one insider has purchased shares in the market. However, several insiders have been sellers in the market.
Most recently, on Sept. 12, management executive Geoffrey Robillard, senior vice-president – import division, sold 5,000 shares at an average price per share of $133.985, trimming his sizable portfolio position to 675,000 shares.
Also of note, on April 12, the company's corporate secretary Josée Kouri exercised her options and sold the corresponding number of shares (8,000) at an average price per share of $117.0268, eliminating her portfolio's position.
Chart watch
The S&P/TSX composite consumer discretionary sector is the top performing sector in the Index year-to-date and this stock is one of the top performing stocks in the sector.
So far this year, this retailer's stock price is up over 40 per cent. The share price has been in an uptrend since its initial public offering in October 2009. The share price is currently less than $1.50 away from closing at a record high.
In terms of key resistance and support levels, the stock price has initial overhead resistance around $140, and after that the stock price could rally to $160. Looking at the downside, there is initial support around $130, near its 50-day moving average (at $129.76). Failing that, there is strong support around $120.
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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, financial forecasts, 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.
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