This morning, key commodities are neutral to stronger. The prices of oil and natural gas futures are firmer, while the price of gold is steady.
Today, key releases of interest to investors may include the following reports.
In Canada, the New Housing Price Index for December will be released. It is an active day for earnings reports with companies such as TELUS Corp. (T-CN), Manulife Financial Corp. (MFC-T), Precision Drilling Corp. (PD-T), MEG Energy Corp. (MEG-T), Thomson Reuters Corp. (TRI-T), Brookfield Asset Management Inc. (BAM/A-T), Great-West Lifeco Inc. (GWO-T), Interfor Corp. (IFP-T), Cameco Corp. (CCO-T), Sierra Wireless Inc. (SW-T), Canadian REIT (REF.un-T), and Agrium Inc. (AGU-T) all scheduled to release their quarterly results.
In the U.S., weekly initial jobless claims and continuing claims figures will be released, and the U.S. Energy Information Administration will be releasing its weekly natural gas storage report.
Briefly recapping Wednesday's stock market returns, major North American equity markets had mixed performance.
In the U.S., the Dow Jones Industrial Average declined 0.18 per cent, the S&P 500 index inched up 0.07 per cent and Nasdaq composite index advanced 0.15 per cent.
Turning to Canada, the S&P/TSX composite index increased 55 points, or 0.36 per cent. There were 170 securities in the TSX Index that advanced, 76 securities declined in value, and three stocks closed the day unchanged.
The TSX Index is up 1.74 per cent year to date.
On today's TSX Breakouts report, there are 80 stocks on the positive breakouts list (stocks with positive price momentum), and just 18 stocks are on the negative breakouts list (stocks with negative price momentum).
The security highlighted today appears on the positive breakouts list. The stock offers investors an attractive dividend yield of 4 per cent and its share price is gaining momentum. The company is Western Forest Products Inc. (WEF–T). Stocks in the forest products sub-sector are seeing their share prices gain traction along with recent strength in the price of lumber futures.
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Vancouver-based Western Forest Products Inc. is a lumber producer operating seven sawmills and one remanufacturing plant.
A risk and overhang for the stock is the unsolved softwood lumber dispute between Canada and the United States.
Later this year, there may be clarity surrounding U.S. countervailing and anti-dumping duties. On the third-quarter conference call, Don Demens, the chief executive officer commented on this issue, stating, "I should comment on the ongoing discussions our federal government is leading in an effort to reach a new manage trade agreement with the United States. We remain supportive of our government's efforts and look forward to some positive engagements from the United States in reaching a mutually beneficial outcome for our industry and, in particular, for our customers. The lack of an agreement and the threat of U.S. trade action has led to market uncertainty. This uncertainty, combined with reduced seasonal demand, has caused markets in North America to pause. We expect the market to remain unsettled until there is some clarity with respect to the dispute."
In terms of his longer term outlook, he added, "Our mid- to long-term global market outlook remains positive. The gradual recovery in the United States new home segment is continuing, as is the strength in the repair and renovation segment. We're also pleased to see the continued growth in demand for forest products from China."
Dividend policy
The company pays its shareholders a quarterly dividend of 2 cents per share, or 8 cents on a yearly basis. This translates to an annualized dividend yield of 3.96 per cent.
The company has a strong balance sheet and has maintained the dividend at this level since 2013.
Financial forecasts
The Street is forecasting EBITDA of $145-million in 2016, rising marginally to $148-million in 2017, and increasing to $154-million the following year.
There have been slight earnings revisions. For instance, one year ago, the consensus EBITDA estimates were $141-million for 2016 and $158-million for 2017.
Valuation
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 5.7 times the 2017 consensus estimate, which is slightly below the five-year historical average of 6.7 times.
The consensus one-year target price is $2.28, suggesting a potential price return of 13 per cent over the next 12 months. If one includes the dividend yield, the potential one-year total return is 17 per cent.
Individual target prices provided by four firms are as follows in numerical order: $1.85, $2.25, and two at $2.50.
Analysts' recommendations
In 2017, five analysts have issued research reports on this small cap stock, with a market capitalization of $799-million, four analysts have "buy" recommendations and one analyst has a "neutral" recommendation.
The firms providing research coverage are as follows in alphabetical order: CIBC World Markets, Raymond James, RBC Capital Markets, Scotia Capital, and TD Securities.
Revised Target Prices
In January, Paul Quinn, the analyst at RBC Capital Markets trimmed his target price to $2.25 from $2.50. In addition, Hamir Patel, the analyst from CIBC World Markets reduced his target price to $1.85 from $2.25 and maintained his 'neutral' recommendation.
Insider transaction activity
The most recent transactions occurred several months ago and were all purchases. On Nov. 24, Jane Bird, who sits on the Board of Directors, purchased 5,300 shares at a price of $1.89 per share. On Nov. 21, Jennifer Foster, the vice president of human resources, purchased 17,500 shares at a price of $1.90. On Nov. 17, Stephen Williams, the chief financial officer, bought 20,000 shares at a price of $1.83 per share. Finally, on Nov. 10, Shannon Janzen, the vice president and chief forester, purchased 15,000 shares at a price of $1.89 per share.
Chart watch
Stocks in the forest products sub-sector are gaining positive price momentum with the price of lumber futures charging higher.
The shares of Western are under accumulation. On Wednesday, the share price rallied 3.1 per cent on very high volume. Over 7.2-million shares traded, well above the two-month historical daily average trading volume of approximately 2.4-million shares. Year-to-date, Western's share price is up 7per cent.
Over the past two years, the stock price has traded principally between $1.80 and $2.30 with the share price currently in the middle of this trading range.
In terms of key resistance and support levels, the share price has initial overhead resistance around its current level of $2, which is near its 200-day moving average (at $2.05). After that, there is resistance between $2.20 and $2.30. There is initial downside support around $1.90, which is close to its 50-day moving average (at $1.88). Failing that, there is support around $1.80.
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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, 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.