On today's TSX Breakouts report, there are 52 stocks on the positive breakouts list (stocks with positive price momentum) and just 11 stocks are on the negative breakouts list (stocks with negative price momentum). The S&P/TSX composite index is approximately 3.5 per cent away from its all-time high set back in February. Financials, which represents approximately one-third of the Index, may help lift the TSX Index back up to record levels.
Discussed today is a bank stock that is gaining traction with room to rally further. The security highlighted is Royal Bank of Canada (RY-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Royal Bank is a diversified financial services company, offering services such as personal and commercial banking, wealth management, insurance, and capital markets operations.
Before the market opened on Aug. 23, the company reported an earnings beat sending the share price rising 1 per cent that day. Also positive, the company's Common Equity Tier 1 (CET1) came in at 10.9 per cent up from 10.6 per cent reported last quarter. The company's fiscal year is Oct. 31.
Royal Bank will be reporting its fourth quarter fiscal 2017 financial results on Nov. 29. The consensus earnings per share estimate is $1.87.
Dividend policy
The company pays its shareholders a quarterly dividend of 91 cents per share or $3.64 per share on a yearly basis. This equates to an annualized yield of 3.9 per cent.
Management is firmly committed to its dividend and just announced a 4.6 per cent dividend increase last month. On the earnings conference call, the chief executive officer David McKay indicated that he is comfortable with a payout ratio at the upper end of its targeted 40 per cent to 50 per cent range.
Analysts' recommendations
There are five analysts with buy recommendations, 10 analysts have hold recommendations, and one analyst (from Barclays) has an 'underweight' recommendation.
Revised recommendations
This month, one analyst revised his target price. Meny Grauman, the analyst from Cormark Securities, trimmed his target price to $98 from $101, maintaining his 'market perform' recommendation. He has maintained a 'market perform' recommendation on this stock since February 2016.
Last month, after the company reported its third quarter earnings results, seven analysts revised their target prices with a mix of both positive and negative revisions.
On the positive side, Doug Young from Desjardins Securities lifted his target price to $106 from $104. Gabriel Dechaine from National Bank Financial increased his target price by $2 to $101. Stephen Theriault from Eight Capital increased his target price to $105 from $102. John Aiken from Barclays increased his target price to $96 (the low on the Street) from $94, but maintained his 'underweight' recommendation. David Donovan from Accountability Research bumped his target price up $1 to $112 (the high on the Street).
On the negative side, Sumit Malhotra from Scotia Capital downgraded the stock to a 'sector perform' from 'sector outperform'. He currently has a $101 target price. Robert Sedran from CIBC World Markets reduced his target price to $103 from $106.
Financial forecasts
The Street is forecasting steady growth for the company. The consensus earnings per share estimate is $7.50 for fiscal 2017, increasing nearly 6 per cent to $7.94 in fiscal 2018.
Earnings estimates have been rising. For instance, four months ago, the consensus earnings per share estimates were $7.35 for fiscal 2017 and $7.72 for fiscal 2018.
Valuation
According to Bloomberg, the stock is trading at a price-to-earnings multiple of 11.8 times the fiscal 2018 consensus estimate, just above its three-year historical average of 11.3 times, and above its 10-year historical average of 11.1 times. Over the past five years, the stock has traded in a range principally 9.5 times and 13 times forward earnings, and is currently trading just above its five-year average of 11.2 times.
The average 12-month target price is $102.60, implying the share price has just under 10 per cent upside potential over the next year. Individual target prices provided by 14 firms are as follows in numerical order: $96, $98, $99, two at $100, $100.67, two at $101, $103, three at $105, $106, $112.
On Nov. 29, when the company reports its fourth-quarter financial results, analysts will be rolling out their fiscal 2019 estimates, and at some point, valuing the stock the stock on fiscal 2019 expectations.
Insider transaction activity
This month, two insiders have traded shares in the public market – one a seller, the other a buyer.
On Sept. 19, Doug McGregor, chairman and chief executive officer of RBC Capital Markets, exercised his options and sold the corresponding number of shares (10,000) at an average price per share of $93.1013, leaving a remaining portfolio balance of 75,908 shares.
On Sept. 15, Thierry Vandal, who sits on the board of directors, purchased 729 shares at an average price per share of $91.91, increasing his portfolio's position to 1,077 shares.
Chart watch
Year-to-date, the stock price is up just 3 per cent, relatively in-line with the price return of the S&P/TSX financials index, which is up 2 per cent.
In terms of key resistance and support levels, the stock price has initial overhead resistance around $94, close to its 200-day moving average (at $94.15). The is a significant ceiling of resistance just below $100. Its record closing high is $99.19, set back in February. There is strong downside support around $90.
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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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