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Thursday’s TSX breakouts: A stock delivering on two fronts - earnings and dividend growth

On today's TSX Breakouts report, there are 61 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).

Discussed today is a stock that appears on the positive breakouts list with the share price closing at a record high on Wednesday. Earnings growth is anticipated to accelerate in the second half of the year with its new facility ramping up. For the past three consecutive quarters, the share price has rallied sharply immediately following its earnings release, rising by 5 per cent or higher each time. Also positive, for the past three consecutive years, management has announced a dividend increase of 10 per cent each year. The security featured today is Premium Brands Holdings Corp. (PBH-T).

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

The company

British Columbia-based Premium Brands is a manufacturer and distributor of food products including sandwiches and processed meats with brand names such as Piller's, McSweeney's, Hygaard and Grimm's Fine Foods. The company has two core operating segments: specialty foods and premium food distribution. For the first half of 2017, specialty foods represented 60 per cent of revenue with the balance, 40 per cent, from premium food distribution.

Before the market opened on Aug. 14, the company reported better-than-expected second quarter financial results that sent the share price soaring 7 per cent that day and climbing an additional 3 per cent the following trading session. The company reported record second quarter financial results. Revenue came in at $577-million, up 24.7 per cent year-over-year. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $55-million, up 37 per cent year-over-year and exceeding the consensus estimate of $52-million. The adjusted EBITDA margin was 9.5 per cent, up from 8.7 per cent reported during the same period last year. Reported adjusted earnings per share came in at 94 cents, beating the Street's forecast of 88 cents.

Growth is anticipated to accelerate in the second half of 2017. On the earnings conference call, the chief financial officer indicated that the new 212,000 square foot sandwich plant in Phoenix, Arizona began operating at the end of the second quarter, operating five lines on two shifts with the target of reaching 10 lines and two shifts by year-end. Management is forecasting the specialty foods segment to achieve organic volume growth in 2017 above its long-term targeted range of between 4 per cent and 6 per cent, with growth driven by this new facility. In addition, management anticipates its premium food distribution segment will also deliver organic volume growth above its long-term targeted range of between 4 per cent and 6 per cent.

During the call, the chief executive officer George Paleologou alluded to potential near-term acquisition announcements stating, "In terms of our acquisitions, we continue to pursue a wide range of opportunities, and are in various stages of due diligence with a number of companies. Correspondingly, we remain very optimistic that we will be announcing several transactions in the second half of this year."

For the past three consecutive quarters, the share price has rallied sharply immediately following its earnings release, rising by 5 per cent or higher each time. If history repeats itself, the stock could be positioned to climb higher in early November, when the company is anticipated to report its third-quarter financial results. The Street is currently forecasting EBITDA of $55.7-million and earnings per share of 95 cents.

Dividend policy

The company pays its shareholders a quarterly dividend of 42 cents per share, or $1.68 per share on a yearly basis. This translates to an annualized yield of 1.6 per cent.

The company has announced a dividend increase in March of every year since 2015, and each of the past three dividend hikes have exceeded 10 per cent.

The free cash flow payout ratio for the trailing four quarters is 34 per cent.

Analysts' recommendations

This mid-cap stock, with a market capitalization of $3.1-billion, is covered by nine analysts on the Street. Analysts' recommendations are mixed, five analysts have buy recommendation and four analysts have hold recommendations.

The nine firms providing research coverage are as follows in alphabetical order: BMO Capital Markets, Canaccord Genuity, Cormark Securities, National Bank Financial, PI Financial Corp., RBC Capital Markets, Scotia Capital, TD Securities, and Veritas Investment Research.

Financial forecasts

The Street is forecasting EBITDA of $204-million in 2017, up from adjusted EBITDA of $154.8-million reported in 2016, with EBITDA anticipated to jump to $240-million in 2018. The consensus earnings per share estimates are $3.33 for 2017 and $4.32 for 2018.

The stock has positive earnings revisions. For instance, just over five months ago, the consensus EBITDA estimates were $195-million for 2017 and $221-million for 2018. The Street's earnings per share forecasts were $3.24 for 2017 and $3.85 for 2018.

Valuation

According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 14.6 times the consensus 2018 estimate, above its three-year historical average of 11.2 times, and at a peak valuation over this three year period.

The one-year consensus target price is $106, suggesting there is just 4 per cent upside in the share price over the next 12 months. Target prices vary widely, ranging from a low of $92 from the analyst at Cormark Securities (implying the stock is overvalued) to a high of $122 from the analyst at TD Securities (suggesting there is 19 per cent upside potential in the share price). Individual target prices are as follows in numerical order: $92, $93, $95, $106, $109, $110, $112, $115 and $122.

Revised recommendations

Since August, eight analysts have revised their target prices – all higher. The ninth analyst covering the company just initiated coverage on the stock last month.

In September, Robert Gibson, the analyst from PI Financial, increased his target price by $2 to $112.

In August, Leon Aghazarian from National Bank Securities raised his target price to $110 from $105. Derek Lessard from TD Securities increased his target price by $30 to $122 (the high on the Street) from $92. Sabahat Khan from RBC Capital Market lifted his target price to $109 from $100. Stephen MacLeod from BMO Capital Markets took his target price up by $9 to $106. Kyle McPhee from Cormark Securities revised his target price to $92 (the low on the Street) from $88. Derek Dley from Canaccord Genuity bumped his target price to $95 from $82, and George Doumet from Scotia Capital raised his target price by $5 to $93.

Insider transactions

There has only been one sizeable six-figure insider transaction in the public market reported so far this year.

On Aug. 15, management executive John Beliveau sold 1,500 shares at an average price per share of $99.80, trimming his portfolio position to just under 59,000 shares.

Chart watch

Premium Brands is the top performing stock of the 11 members in the S&P/TSX composite consumer staples sector index year-to-date. The stock has sharply outperformed its peers. The S&P/TSX consumer staples index is only up 2 per cent year-to-date, while Premium Brands' share price has soared 48 per cent with the stock price closing at an all-time high on Wednesday. Furthermore, the strong stock performance has been over a number of years with the share price remaining in a multi-year uptrend marked by higher highs and higher lows.

The daily average trading volume is moderate. Over the past three months, the historical daily average trading volume is approximately 120,000 shares.

In terms of key resistance and support levels, the stock price has initial overhead resistance around $105, and after that around $110. Looking at the downside, there is initial support around $98, near its 50-day moving average (at $97.65). Failing that, there is strong support around the $90 level.

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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, financial forecasts, 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.

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Positive BreakoutsOct. 11 close
AW.UN-TA&W Revenue Royalties Income Fund $34.76
ABT-TAbsolute Software Corp $8.31
AGF.B-TAGF Management Ltd $8.14
AC-TAir Canada $27.92
AIF-TAltus Group Ltd $33.97
ADW.A-TAndrew Peller Ltd $12.27
APH-TAphria Inc. $7.84
AX.UN-TArtis Real Estate Investment Trust $13.65
AVO-TAvigilon Corp $18.80
BMO-TBank of Montreal $97.24
GBT-TBMTC Group Inc $12.53
BPY.UN-TBrookfield Property Partners LP $30.50
GOOS-TCanada Goose Holdings Inc. $26.46
CEU-TCanadian Energy Services & Technology Co $6.99
CFX-TCanfor Pulp Products Inc $14.07
WEED-TCanopy Growth Corp. $13.59
CCL.B-TCCL Industries Inc $63.94
CHR-TChorus Aviation Inc $8.69
CM-TCIBC $112.27
CVG-TClairvest Group Inc. $37.00
CUF.UN-TCominar Real Estate Investment Trust $13.79
CMG-TComputer Modelling Group Ltd $10.02
CSU-TConstellation Software Inc $719.64
DIV-TDiversified Royalty Corp $3.22
ECN-TECN Capital Corp. $4.05
EMA-TEmera Inc $48.17
FSV-TFirstService Corp $88.74
GH-TGamehost Inc $10.31
GEI-TGibson Energy Inc $18.14
GWO-TGreat-West Lifeco Inc $36.27
HSM-THelius Medical Technologies Inc. $4.98
IFP-TInterfor Corp $20.73
KL-TKirkland Lake Gold Inc $18.49
KDX-TKlondex Mines Ltd $4.80
MRE-TMartinrea International Inc $12.78
LLG-TMason Graphite Inc. $2.35
LEAF-TMedReleaf Corp. $10.81
NA-TNational Bank of Canada $61.45
NCC.A-TNewfoundland Capital Corp Ltd $12.95
NDM-TNorthern Dynasty Minerals Ltd. $2.51
PLC-TPark Lawn Corp. $19.57
MJN-TParmaCan Capital Corp. $3.08
PZA-TPizza Pizza Royalty Corp $16.93
POW-TPower Corp of Canada $32.30
PWF-TPower Financial Corp $35.35
PBH-TPremium Brands Holdings Corp $102.31
PVG-TPretium Resources Inc $15.05
QTRH-TQuarterhill Inc. $2.12
RCI.B-TRogers Communications Inc $66.12
RY-TRoyal Bank of Canada $98.83
SEA-TSeabridge Gold Inc $16.25
SCL-TShawCor Ltd $29.60
SOT.UN-TSlate Office REIT $8.17
ZZZ-TSleep Country Canada $39.80
STN-TStantec Inc $35.39
SPB-TSuperior Plus Corp $12.74
TF-TTimbercreek Financial Corp. $9.50
TGL-TTransGlobe Energy Corp $2.03
TCW-TTrican Well Service Ltd $4.76
TNT.UN-TTrue North Commercial REIT $6.53
WJA-TWestJet Airlines Ltd $27.35
Negative Breakouts
AOI-TAfrica Oil Corp $1.62
AXY-TAlterra Power Corp. $5.01
DNA-TDalradian Resources Inc. $1.28
DML-TDenison Mines Corp $0.51
DHX.B-TDHX Media Ltd $4.81
GS-TGluskin Sheff + Associates Inc $16.44
PEY-TPeyto Exploration & Development Corp $18.61
TOU-TTourmaline Oil Corp $22.70
WED-TWestaim Corp. $2.88

Source: Bloomberg/Jennifer Dowty

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