In terms of news releases, it is a relatively quiet day. Today, Hudson's Bay Co. will be reporting its third-quarter fiscal 2017 financial results after the market closes. There are no key Canadian economic releases. In the U.S., Purchasing Managers' Index data and the ISM non-manufacturing index for November will be reported.
Briefly recapping Friday's performance, it was a neutral day for major North American equity markets.
In the U.S., the Dow Jones Industrial Average, S&P 500 Index, and Nasdaq composite closed down 0.11 per cent, up 0.04 per cent, and up 0.09 per cent, respectively.
In Canada, the S&P/TSX composite index gained 25 points, or 0.17 per cent. There were 128 securities in the TSX Index that advanced, 109 securities declined in value, and 10 stocks closed the day unchanged. Just about half of the sectors in the Index, six of the 11, closed in the green led by strength in gold and silver stocks.
The TSX Index is down 0.20 per cent month-to-date, up 2.22 per cent quarter-to-date, and has a year-to-date gain of 15.70 per cent.
On today's TSX Breakouts report, there are 37 stocks on the positive breakouts list (stocks with positive price momentum), and just 11 securities on the negative breakouts list (stocks with negative price momentum).
Discussed today is a security that appears on the positive breakouts list. The security highlighted is Secure Energy Services Inc. (SES-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Calgary-based Secure Energy Services is an oilfield services company serving oil and gas companies through its three main divisions: the processing, recovery and disposal division, the drilling and production services division, and the onsite services division.
After the market closed on Nov. 3, the company reported third-quarter financial results that were above expectations. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $27.4-million, compared to the Street's forecast of $24.6-million. The company's balance sheet remains healthy with a debt-to-EBITDA ratio of 2.1 times as of the end of the quarter.
Management's outlook was encouraging, stating, "As it appears commodity prices have bottomed earlier this year, Secure expects an increase in oil and gas producers' capital budgets for 2017 over 2016, which will drive higher activity levels and benefit all three of the corporation's divisions. Additionally, the industry trend towards drilling longer and more challenging wells which require specialty drilling fluids is expected to continue to benefit the DPS division."
Reflecting management's optimism, the company increased its capital spending program to $65-million, up from its previous forecast of $50-million saying, "During the remainder of the year and into 2017, the corporation will continue its prudent approach to both acquisitions and organic capital spending. The corporation will continue to increase capacity to meet demand at current facilities by adding additional tanks, disposal wells and expansion landfill cells. Secure estimates total organic capital expenditures of approximately $65-million in 2016, up from previous estimates of $50-million. The increase relates primarily to an expansion at the Kindersley FST to increase storage and throughput capacity, an additional cell added to the Corporation's Fox Creek landfill, and various sustaining projects at existing facilities."
The share price soared 9 per cent the following trading session on high volume with over 3.0-million shares traded, well above the two-month historical average daily trading volume of approximately 1.1-million shares.
Dividend policy
The company pays its shareholders a monthly dividend of 2 cents per share or 24 cents on a yearly basis. This equates to an annualized dividend yield of 2.4 per cent.
The company has maintained its dividend at this level since the beginning of 2015. The company initiated a monthly dividend of 1.25 cents per share payable in May, 2013, and since then, management has never trimmed its dividend, only raised it, despite challenging industry conditions with pressure on pricing and lower activity levels.
Valuation
Analysts commonly value the stock on an enterprise value-to-EBITDA (EV/EBITDA) basis. According to Bloomberg, the stock is trading at an EV/EBITDA multiple of 13 times the 2017 consensus estimate, at peak levels looking back over the past three years, and trades at an EV/EBITDA multiple of 10.5 times the 2018 consensus estimate, below the its peak of 12 times over the past three years.
The average one-year target price is $11.67, implying the share price may appreciate 15 per cent over the next 12 months. Target prices range from a low of $10.50 to a high of $13.50. Individual price targets are as follows: $10.50, four at $11, $11.75, four at $12, $12.25, and $13.50.
Analysts' recommendations
This stock, with a market capitalization of $1.6-billion, is well covered by the Street and highly recommended by analysts. Since the start of November, 12 analysts have issued research reports, of which 11 are 'buy' recommendations and one is a 'hold' recommendation, from the following firms in alphabetical order: Alta Corp Capital, BMO Capital Markets, Canaccord Genuity, CIBC World Markets, Cormark Securities, GMP, National Bank Financial, Paradigm Capital, Peters & Co., Raymond James, Scotia Capital and TD Securities.
The Street is forecasting EBITDA of $90-million for 2016, rising to $140-million in 2017, and to $174-million in 2018.
Forecasts have bounced around this year but have stabilized since the beginning of the second half of the year. For instance, on Jan. 1, the consensus EBITDA estimates were $141-million for 2016 and $192-million for 2017- estimates that were later slashed down. However, on July 1, the Street was forecasting EBITDA of $93-million for 2016 and $151-million for 2017, slightly above current estimates. The company experienced positive, albeit small, earnings revisions in November, perhaps marking an inflection point.
Chart watch
Year-to-date, the share price is up 21 per cent.
The share price has been consolidating, trading sideways, principally between $7.50 and $10 since March.
The stock price is facing overhead resistance around its current level, near $10. If the share price fails to sustain its break above this level, there is downside support around $9, which is close to its 50-day moving average (at $8.89) and its 200-day moving average (at $8.74). Below that, there is support between $7.50 and $8.
Should the share price be able to sustain its break above $10, the next resistance level is between $13 and $13.50, and after that around $15.
The relative strength index is at 71, suggesting the shares are in overbought territory. Generally, a reading of 70 or higher indicates an overbought 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.
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.