On Friday, major North American stock markets all closed with slight losses.
In the U.S., the Dow Jones Industrial Average declined 0.03 per cent, the S&P 500 index lost 0.08 per cent, and the Nasdaq composite index retreated 0.02 per cent.
In Toronto, the S&P/TSX composite index fell by 30 points, or 0.19 per cent. There were 103 securities in the TSX Index that advanced, 139 securities declined in value, and nine stocks closed the day unchanged. Only four sectors closed in positive territory, the telecom, consumer discretionary, utilities, and consumer staples segments.
The TSX Index is up 2.48 per cent year to date.
On today's TSX Breakouts report, there are 42 stocks on the positive breakouts list (stocks with positive price momentum), and nine stocks are on the negative breakouts list (stocks with negative price momentum).
On Friday, the S&P/TSX composite index was little changed; however, one sub-sector was up sharply – the forest products segment. Of the top 10 performing stocks in the TSX Index, four of them were forest products stocks. West Forest Timber's (WFT-T) share price jumped 5.5 per cent, Interfor's (IFP-T) stock price rallied 5 per cent, Western Forest Products (WEF-T) advanced 3.2 per cent and Canfor's (CFP-T) share price climbed 2.6 per cent. Higher commodity prices are boosting share prices for the group. For instance, on Friday, the price of lumber jumped 2.6 per cent. Featured today is a company from this leading sub-sector whose share price has rallied 20 per cent so far in 2017 with further upside anticipated by analysts. The security I am referred to is Norbord Inc. (OSB-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Toronto-based Norbord is a global manufacturer of wood-based panels, and the world's largest producer of oriented strand board (OSB). In addition, Norbord manufactures particleboard, fibreboard, and related products. The company operates 17 plants in Canada, the United States, and Europe. In terms of geographical revenue breakdown, in 2016, 73 per cent of sales was from North America, 23 per cent was from Europe, and the remaining 4 per cent stemmed from Asia.
Before the market opened on February 3, the company reported better-than-expected fourth-quarter financial results that sent the stock price soaring over 3 per cent that trading day, on high volume. Since reporting the earnings beat, the share price has rallied 24 per cent.
Norbord reported adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $114-million (U.S.), well above the consensus estimate of $104-million, and up from $57-million reported during the same period in the prior year.
In the earnings news release, management highlighted the positive trend in housing stating, "Single family starts, which use approximately three times more OSB than multifamily, increased by 9 per cent in 2016. U.S. housing economists are forecasting 2017 starts of approximately 1.25 million, a further 7 per cent year-over-year improvement."
Industry data has been supportive for the sector. On March 23, U.S. new home sales for the month of February spiked to its highest level since July 2016. Strong housing activity translates into strong demand for the company's products. Furthermore, last month, the National Association of Home Builders confidence index climbed to its highest level since June 2005.
The company continues to deleverage its balance sheet that saw its leverage levels spike due to the merger with Ainsworth.
Norbord will be reporting its first-quarter financial results before the market opens on Tuesday May 2.
The company is dual listed, trading on the Toronto Stock Exchange as well as the New York Stock Exchange, under the same ticker, OSB.
Dividend policy
The company pays shareholders a quarterly dividend of 10 cents (Cdn.) per share, or 40 cents on a yearly basis. This equates to an annualized yield of just under 1 per cent. Management has maintained the dividend at this level since 2015.
Analysts' recommendations
There are 10 firms providing research coverage on this company. The firms are as follows in alphabetical order: BMO Capital Markets, CIBC World Markets, Credit Suisse, EVA Dimensions, Morningstar, Raymond James, RBC Capital Markets, Scotia Capital, TD Securities, and Vertical Research Partners.
The stock has six "buy" recommendations and four "hold" recommendations.
Financial forecasts
All financials are expressed in U.S. dollars. The Street is forecasting stable earnings for the company. The consensus EBITDA estimates are $485-million for 2017 and $486-million for 2018.
Revisions have been to the downside. For instance, four months ago, the consensus EBITDA estimates were $518-million for 2017 and $495-million for 2018.
Valuation
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 6.6 times the 2018 consensus estimate, in-line with its three-year historical multiple.
The average one-year target price is $42.46, implying approximately 5 per cent upside potential in the share price over the next 12 months. Individual target prices range from a low of $36 to a high of $47. Individual target prices provided by eight firms are as follows, all of which are expressed in Canadian dollars unless otherwise indicated: $36, $28 U.S. (which translates to approximately over $37 Cdn), $40, $42.50, $45, $34 U.S. (roughly over $45 Cdn.), $46, and $47.
Revised recommendations
Analysts' recommendations have been on the rise. Last week, Benoit Laprade, the analyst from Scotia Capital, raised his target price to $42.50 from $41.25. In March, Andrew Kuske, the analyst at Credit Suisse, bumped his target price up to $40 from $34. Sean Steuart, the analyst from TD Securities, increased his target price to $34 from $32. In addition, Chip Dillon, the analyst from Vertical Research, increased his target price by $3 to $46.
Chart watch
Year to date, the share price is up 20 per cent and remains in an uptrend.
The relative strength index is at 70, suggesting the shares are in overbought territory. Generally, a reading at or above 70 indicates an overbought condition.
Should the share price retreat on potential profit taking, there is initial support between $39.50 and $40. Failing that, there is support around $37.50, close to its 50-day moving average (at $37.43), and further support around $35.
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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.