Monday’s TSX breakouts: This stock features 15 years of annual dividend increases

On Thursday, it was a subdued trading day ahead of the Canada' Day holiday. The S&P/TSX composite index closed marginally higher, by 28 points, or 0.2 per cent.

Year to date, the TSX Index is up 8.1 per cent with seven of the 10 sectors are in positive territory for the first half of the year. Leadership is from a combination of cyclical stocks as well as defensive stocks. The top four performing sectors in the Index are: materials, energy, utilities, and telecom.

Small caps outperformed large caps during the first half of the year. The S&P/TSX SmallCap Index was up 26 per cent, while the S&P/TSX 60 Index appreciated 7 per cent.

The S&P/TSX Capped REIT Index fared well, advancing 18 per cent in the first half of 2016.

On today's TSX breakouts report, there are 54 securities on the positive breakouts list (stocks with positive price momentum) and just seven securities on the negative breakouts list (stocks with negative price momentum).

Discussed today is a stock from the positive breakouts list whose share price has rallied 32 per cent year to-date. Analysts on the Street forecast have differing opinions surrounding its upside potential, some believe the stock price is approaching a fair valuation, while others believe the stock price may rise another 10 per cent or more. The stock is SNC-Lavalin Group Inc. (SNC-T).

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

The company

SNC-Lavalin is an engineering and construction company servicing clients across four market segments: oil and gas, mining and metallurgy, infrastructure and construction, and power. The company is also involved in the ownership of infrastructure concession investments. For instance, the company has an ownership interest in Highway 407, a toll highway in the Greater Toronto Area.

The company's revenues are diversified. In 2015, 44 per cent was from Canada, 15 per cent from the Middle East, 14 per cent from Australia, 8 per cent from the U.S., 7 per cent from Africa, 6 per cent from Latin America, 5 per cent from Europe, the balance was from other regions.

On May 5, the company reported first-quarter financial results and announced record order backlog. Order backlog, an indicator of future revenue, rose to an all-time high of $13.4-billion, with $3.4-billion in new contracts booked in the first-quarter, of which $1.8-billion came from the oil and gas sector, and $1.1-billion was from the power segment.

The company had $1.4-billion in cash and cash equivalents at the end of the first quarter.

In the earnings press release, management's outlook for 2016 was positive, noting, "We continue to expect that the Oil & Gas and Power segments will be the main contributors to net income, while Mining & Metallurgy will likely be the smallest contributor to net income. We also expect that the Infrastructure & Construction sub-segment will return to full year profitability in 2016."

The share price closed slightly higher that day, rising 35 cents, or 0.8 per cent, to $45.69.

Returning capital to shareholders

Management has been committed to its dividend, announcing an increase to its yearly dividend every year for the past 15 years. In March, management announced a 4 per cent increase to its quarterly dividend, raising it to 26 cents per share from 25 cents. This equates to $1.04 on a yearly basis, or an annualized yield of 1.9 per cent.

Management has also been actively repurchasing shares. From June 5, 2015 through to May 18, 2016, the company repurchased over 1.4 million shares at a weighted average price of $43.78 under its normal course issuer bid (NCIB). Last month, the Board of Directors filed a notice to renew its NCIB for 12-months.

Valuation

Many analysts evaluate the stock on a sum-of-the-parts basis. Target prices range from a low of $48 to a high of $63. Individual price targets are as follows: $48, $52, $53, $54, $56, $57, $58, $58.50, $60 and $63.

Analysts' recommendations

According to Bloomberg, the one-year price target is $55.95, which is based on nine buy recommendation and one hold recommendation. This suggests the share price is close to fairly valued; however, there is some disparity between analysts' target prices.

The consensus earnings per share estimate is $1.67 in fiscal 2016, increasing approximately 31 per cent to $2.18 in fiscal 2017. When management reported its first quarter results, it maintained its 2016 adjusted earnings per share guidance from engineering and construction of between $1.50 and $1.70.

Chart watch

The share price has experienced a parabolic move, rising to $54.26 on June 30 from $37.60 on January 25. Year to date, the stock price has rallied 32 per cent.

The stock faces overhead resistance around $55, and after that around $59, a level relatively close to its peak in August 2014 and also in July 2011.

There is downside support between $50 and $51, the stock's 50-day moving average lies between these points at $50.94.

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.