Today, equity markets head into the final quarter of 2016, historically a strong period for stock markets.
This week, a key number to watch for will be the September non-farm payrolls report released at the end of this week.
To recap, last Friday, all major equity markets in the U.S. closed the month on positive notes. The Dow Jones Industrial Average advanced 0.91 per cent, the S&P 500 Index gained 0.80 per cent, and the Nasdaq composite index rallied 0.81 per cent.
In Canada, the S&P/TSX composite index was in positive territory until the final half hour of trading. The Index closed relatively unchanged, down 29 points, or 0.19 per cent, to 14,726, weighed down by gold stocks. There were 96 securities in TSX Index that advanced, 144 securities declined in value, and six stocks closed the day unchanged.
The S&P/TSX composite index ended the month of September with a gain of 0.88 per cent. Year to date, the index is up 13.19 per cent.
On today's TSX Breakouts report, there are 33 securities on the positive breakouts list (stocks with positive price momentum), and 24 securities on the negative breakouts list (stocks with negative price momentum).
Discussed below is a stock that recently fell of the positive breakouts list. This stock was highlighted in the daily TSX Breakouts report on June 10 and March 29 given its positive price momentum. While the share price is up 29 per cent year to date, analysts on the Street forecast another 17 per cent of upside potential over the next year. The security highlighted today is BRP Inc. (DOO-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
BRP manufactures and markets powersports vehicles and propulsion systems. Products manufactured include roadsters, all-terrain vehicles, snowmobiles, and personal watercrafts with brand names such as Can-Am, Lynx, Ski-Doo, and Sea-Doo. In terms of geographical revenue breakdown, in fiscal 2016, 51 per cent of its revenue was from the U.S., 31 per cent was international, and 18 per cent was from Canada.
There is a high degree of seasonality in the business. We are currently in the company's strongest seasonal period, when the company generates the majority of its revenue– the fiscal third and fourth quarters. The company's fiscal year end is Jan. 31.
In early-September, the company reported its second-quarter financial results, traditionally the weakest period for the company. On the second quarter conference call, Sébastien Martel, the chief financial officer, provided a positive outlook for the upcoming quarters, stating, "Our normalized earnings per share (EPS) guidance is therefore adjusted upwards to $1.82 to $1.92. As we have already alluded in previous quarters, our guidance implies for a robust EBITDA (earnings before interest, taxes, depreciation and amortization) growth in the back half of the year, and more importantly, in the fourth quarter. We are confident on our plan for the year as the catalysts for strong back half growth are higher volume and a richer product mix driven by initial shipments of the newly introduced products, notably the Maverick X3 and the new snowmobile platforms."
The company will be reporting its third-quarter fiscal 2017 financial results before the market opens on December 9. Given there may be a lack of corporate news in the near-term, the share price could drift down slightly, particularly when there is market volatility.
Returning capital to shareholders
The company does not pay shareholders a dividend. However, management is active with its normal course issuer bid, repurchasing over 2.4-million shares during the first half of fiscal 2017.
According to Bloomberg, there are 11 'buy' recommendations and two 'hold' recommendations. There are no 'sell' recommendations. The average one-year target price is $30, suggesting there is 17 per cent upside potential over the next 12 months. Target prices are quite concentrated, ranging from a low of $29 to a high of $31, with the exception of one analyst whom has a target price of $22. Individual target prices supplies by 10 firms are as follows: $22, $29, four at $30 and four at $31.
The consensus EBITDA estimate is $497-million in fiscal 2017, and forecast to rise 9 per cent to $540-million in fiscal 2018. The consensus EPS estimate is $1.88 for fiscal 2017, and $2.10 for the following fiscal year.
Management has guided to EPS of between $1.82 and $1.92 in fiscal 2017, up from $1.71 in the previous year.
Forecasts have been rising. Analysts revised their earnings estimates higher after the company reported its 2016 fiscal year end financial results on March 18. The prior day, the consensus EBITDA estimate was $481-million for fiscal 2017, and stood at $524-million for fiscal 2018. The consensus EPS estimates were $1.73 for fiscal 2017 and $2.00 for fiscal 2018.
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 7.1 times the fiscal 2018 consensus estimate, which is slightly below its three-year historical average of 7.8 times.
Over the past year, the share price has experienced a V-shaped recovery. Year to date, this consumer discretionary stock is the third best performer, coming in behind Sleep Country Canada Holdings Inc. (ZZZ-T) and Great Canadian Gaming Corp. (GC-T).
There is upside overhead resistance at $30. In terms of downside risk, there is initial support between $24 and $25, which is close to its 50-day moving average (at $23.83). Failing that, there is support between $20 and $22, near its 200-day moving average (at $20.01).
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 indices 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.
|Positive Breakouts||Sept. 30 close|
|AFN-T||Ag Growth International Inc||$44.42|
|ALS-T||Altius Minerals Corp||$11.15|
|BLD-T||Ballard Power Systems Inc||$2.88|
|BNK-T||Bankers Petroleum Ltd||$2.20|
|CBL-T||Callidus Capital Corp||$16.70|
|CEU-T||Canadian Energy Services & Technology Corp.||$5.19|
|CNR-T||Canadian National Railway Co||$85.76|
|DDC-T||Dominion Diamond Corp||$12.75|
|ENF-T||Enbridge Income Fund Holdings Inc||$34.04|
|KEG.UN-T||Keg Royalties Income Fund||$21.73|
|LAS.A-T||Lassonde Industries Inc||$215.44|
|MG-T||Magna International Inc||$56.32|
|MTY-T||MTY Food Group Inc.||$45.44|
|PSG-T||Performance Sports Group Ltd||$5.33|
|PHX-T||PHX Energy Services Corp||$3.75|
|PLZ.UN-T||Plaza Retail REIT||$5.24|
|RKN-T||Redknee Solutions Inc||$2.43|
|VII-T||Seven Generations Energy Ltd||$31.58|
|SJR.B-T||Shaw Communications Inc||$26.85|
|SGY-T||Surge Energy Inc||$2.71|
|TSL-T||Tree Island Steel Ltd.||$6.45|
|TCW-T||Trican Well Service Ltd||$2.69|
|ZCL-T||ZCL Composites Inc.||$11.12|
|AX.UN-T||Artis Real Estate Investment Trust||$12.41|
|REF.UN-T||Canadian Real Estate Investment Trust||$47.06|
|CAO-T||Cara Operations Ltd||$27.59|
|CXR-T||Concordia Healthcare Corp||$5.87|
|CRR.UN-T||Crombie Real Estate Investment Trust||$14.31|
|DHX.B-T||DHX Media Ltd||$6.90|
|FSZ-T||Fiera Capital Corp||$12.20|
|FR-T||First Majestic Silver Corp||$13.53|
|GS-T||Gluskin Sheff + Associates Inc||$15.94|
|IGM-T||IGM Financial Inc||$35.42|
|L-T||Loblaw Cos Ltd||$67.50|
|MND-T||Mandalay Resources Corp||$1.00|
|NWC-T||North West Co Inc||$25.84|
|OR-T||Osisko Gold Royalties Ltd||$14.36|
|THO-T||Tahoe Resources Inc||$16.82|
|VCM-T||Vecima Networks Inc||$8.95|
|WRG-T||Western Energy Services Corp||$2.22|