On today's TSX Breakouts report, there are 32 stocks on the positive breakouts list (stocks with positive price momentum), and 33 stocks are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a security that may resurface on the positive breakouts list in the near-term with acquisition announcements acting as potential catalysts.
Operationally, the company is reporting solid numbers, steadily growing both its earnings and dividend. The security highlighted below is Waste Connections Inc. (WCN-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Waste Connections' core business offers solid waste collection, solid waste disposal and transfer, and solid waste recycling services with operations across North America. Solid waste collection is the company's largest business segment, representing 60 per cent of the company's total revenue during the first nine months of 2017. The company operates in 38 U.S. states and five Canadian provinces.
There is seasonality in the company's revenues. Historically, revenues are lowest in the winter months, or first quarter, and higher in the second and third quarters, after which, revenues dip back down in the fourth quarter.
After the market closed on Oct. 25, the company reported better-than-expected third-quarter financial results that send the share price rising nearly 4 per cent the following trading day on high volume with nearly 1-million shares traded, well above the three-month historical daily average trading volume of approximately 440,000 shares. Reported adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) came in at $393-million (U.S.), an increase of 15 per cent from $342-million reported during the same period last year, and ahead of the consensus estimate of $386-million. EBITDA margins were 32.6 per cent, up from 31.6 per cent during the same period last year. The financial results were impressive given the active hurricane season in the third quarter.
On the earnings call, Chief Executive Officer Ronald Mittelstaedt reflected on positive industry conditions stating, "Looking at acquisition activity, this remains one of the most active deal environments we've seen in years. We completed the previously announced acquisition of a $15 million revenue franchise collection operation in Alaska and have made significant progress on other potential acquisitions currently under letters of intent. If the projected timeline plays out as we expect, we anticipate deploying a meaningful portion of our existing cash balance on acquisitions late in this quarter or very early in Q1 (the first quarter), 2018."
Looking forward to the new year, Mr. Mittelstaedt commented, "Although we won't provide our formal outlook for 2018 until next February, we're able to provide some early thoughts, assuming no change in the current economic environment or additional acquisitions. In summary, we believe we've already positioned for at least a 50 basis point expansion in adjusted EBITDA margins in 2018, even if recent lower recycled fiber values persist. Any recovery in recycled fiber values or further increase in E&P (exploration and production) waste activity could provide additional margin upside. We expect to have better visibility on this expected margin expansion, acquisition outlays and recycled fiber values in February when we provide our formal outlook for the upcoming year."
The stock is dual-listed, trading on both the Toronto Stock Exchange and the New York Stocks Exchange under the same ticker, WCN.
Dividend policy
The company pays its shareholders a quarterly dividend in U.S. dollars of 14 cents per share, or 56 cents per share yearly. This equates to an annualized dividend yield of approximately 0.8 per cent.
Last month, management announced a 17 per cent dividend increase, lifting the quarterly dividend to its present level of 14 cents per share from 12 cents.
On the earnings call, Mr. Mittelstaedt commented on the company's sustainable and growing dividend highlighting that this was Waste Connections', " Seventh consecutive double-digit percentage increase since commencing the dividend in 2010. Even with this increase, our dividend remains less than 20 per cent of our expected annual free cash flow, providing tremendous flexibility to fund our growth, strategy and further increase the return of capital to shareholders."
Analysts' recommendations
There are 15 analysts who actively cover this stock, of which, 12 analysts have buy recommendations and three analysts have hold recommendations.
Revised recommendations
In October, nine analysts revised their expectations.
Derek Spronck from RBC Capital Markets took his target price up to $80 (U.S.) from $76. Joe Box from KeyBanc Capital Markets lifted his target price by $3 to $78 (U.S.). Brian Maguire from Goldman Sachs increased his target price to $81 (U.S.) from $73. Andrew Buscaglia from Credit Suisse raised his target price to $82 (U.S.) from $75. Corey Greendale from First Analysis took his target price up to $75 (U.S.) from $68. Patrick Tyler Brown from Raymond James lifted his target price by $2 to $83 (U.S.). Noah Kaye from Oppenheimer increased his target price to $78 (U.S.) from $74. Damir Gunja from TD Securities tweaked his target price higher to $74 (U.S.) from $73. Lastly, Chris Murray from AltaCorp Capital took his target price up to $105 (Cdn) from $95.
Financial forecasts
The company reports its financial results in U.S. dollars.
The Street is expecting EBITDA of $1.45-billion in 2017, $1.56-billion in 2018, and $1.67-billion the following year. The Street is forecasting earnings per share of $2.13 in 2017, $2.34 in 2018, and $2.60 in 2019.
Financial forecasts have been stable, increasing slightly, over recent months. For instance, three months ago, the consensus EBITDA estimates were $1.45-billion for 2017 and $1.57-billion for 2018.
Valuation
The stock is not inexpensive. According to Bloomberg, Waste Connections is trading at an enterprise value-to-EBITDA multiple of nearly 14 times the 2018 consensus estimate, well above its three-year historical average and near its peak multiple during this time period.
The consensus one-year target price is $100.67 (Cdn), suggesting the stock price has 13 per cent upside potential over the next 12 months.
Insider transaction activities
The most recent transactions reported by insiders occurred last month.
On Oct. 31, the company's Chief Operating Officer Darrell Chambliss sold 5,625 shares, reducing his portfolio's holdings to 100,000 shares.
On. Oct. 30, Robert Davis, who sits on the board of directors, trimmed 700 shares from his portfolio at an average price per share of $71.72 (U.S.), leaving a remaining portfolio balance of 12,598 shares.
Chart watch
The stock's underlying uptrend remains intact. Year-to-date, the share price is up over 26 per cent.
In terms of key resistance and support levels, there is a ceiling of resistance around $90 (Canadian), and after that, around $93, near its record closing high reached last month after the company reported solid third-quarter financial results (at $92.80). Looking at the downside, the stock price has initial support around $83, which is close to its 200-day moving average (at $83.21). Failing that, there is strong technical support around $80.
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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 indexes 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.