Monday’s TSX breakouts: This defensive dividend stock is nearing oversold territory

Last week ended on a subdued note with the S&P/TSX composite index inching higher on Friday to close the day up 19 points to 13,902, gaining approximately one tenth of a per cent.

On Friday, it was an even match between the bulls and the bears with 114 stocks advancing and a relatively equal number of securities declining, 116 securities to be exact. Just four stocks finished the day unchanged. Year-to-date, the TSX index is now up 6.9 per cent.

On today's Breakouts Report, there is a relatively even, and low, number of securities on the positive breakouts list (stocks with positive price momentum), at 10, compared to 16 stocks on the negative breakouts list (stocks with negative price momentum).

Discussed today is an industry leader that surfaced on the negative breakouts list, Loblaw Companies Ltd. (L-T).

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

The Company

Loblaw has three core operating divisions. First, the retail segment that consists of supermarkets and drug stores under banners such as Loblaws, Real Canadian Superstore, Valu-Mart, Fortinos, Zehrs, Pharmaprix, and Shoppers Drug Mart. Second, the financial services segment, which provides services such as banking and mortgages. Lastly, is the company's interest in Choice Properties Real Estate Investment Trust.

On May 4, the company reported first-quarter financial results that were relatively in-line with the Street. Earnings per share came in at 82 cents, compared to the consensus estimate of 81 cents.

Returning Capital to Shareholders

Management has announced a dividend increase every calendar year since 2012 . The latest dividend hike announcement occurred last month. In May, a 4 per cent bump to its quarterly dividend was announced, lifting the quarterly dividend to 26 cents per share from 25 cents. This equates to $1.04 per share on a yearly basis, or an annualized dividend yield of 1.5 per cent.

During the first-quarter, the company repurchased just under 3.4-million shares at a weighted average price of $68.16 per share.

Valuation

The stock is assessed on a sum-of-the-parts basis, applying different valuation methodologies to Loblaw's various operating segments. Price target range from a low of $74 to a high of $80. Individual price targets are as follows: $74, $75, $76, three at $77, $78, $79, and four at $80.

Analysts' recommendations

According to Bloomberg, the one-year price target is $78.08, which is based on nine buy recommendations and three hold recommendations. This suggests the share price may appreciate nearly 14 per cent.

The Street is forecasting earnings before interest, taxes, depreciation and amortization (EBITDA) of $3.72-billion in 2016, rising to $3.92-billion in 2017. The consensus earnings per share estimate is $3.85 cents in 2016, with an 11 per cent increase to $4.29 in 2017.

Chart watch

Overall, the stock chart is unimpressive. Over the past year, the share price has been range bound, trading largely between $65 and $74.

Year to date, the stock price has rallied 5 per cent, slightly underperforming the S&P/TSX composite index, which is up 6.9 per cent, but outperforming the S&P/TSX composite index consumer staples sector, which is up just half a per cent. Shares of Loblaw have delivered mixed performance relative to its peers, Empire and Metro, whose stock prices are down 18 per cent and up 14 per cent, respectively, year-to-date.

The stock price has initial resistance around $70, near its 50-day moving average (at $70.14), and after that around $72. There is large overhead resistance at $74, close to its peaks in March 2016 and August 2015.

There is downside support around $68, near its 200-day moving average (at $68.48), and failing that, there is support around $65.

The stock price has declined 5 per cent in the past two weeks, with higher than normal volumes trading. The relative strength index is at 35, suggesting the shares are not yet in oversold territory. Generally, a reading at or below 30 indicates 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.

Below is a list of securities principally from the S&P/TSX composite index and the S&P/TSX Small Cap index that 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.