On today's TSX Breakouts report, there are 53 stocks on the positive breakouts list (stocks with positive price momentum), and 22 stocks are on the negative breakouts list (stocks with negative price momentum).
Featured today is a security that appears on the positive breakouts list and may be of interest to investors seeking a combination of income and growth. The company offers investors an attractive yield of 3.8 per cent. The stock has an unanimous buy call on the Street with six analysts recommending the stock. The consensus target price suggests there may be 17 per cent upside potential, and if you include the dividend yield, that represents a potential total return of over 20 per cent over the next 12 months. The share price continue to rebound. Last year, the stock price rallied 55 per cent. The security I am referring to is Rocky Mountain Dealership Inc. (RME-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Calgary-based Rocky Mountain rents, sells, and leases used and new agriculture and industrial equipment through its dealership network across Alberta, Saskatchewan, and Manitoba. Rocky services two key market segments, the agriculture market and the industrial market. Rocky is Canada's largest retail dealer of CNH Industrial equipment, which includes brands such as Case IH Agriculture and Case Construction. The agriculture business represents the majority of its sales. Consequently, there is seasonality to the company's operations with the lowest revenues generated in the first quarter and the strongest revenues earned in the fourth quarter, which we are currently in.
Before the market opened on Nov. 8, the company reported better-than-expected third-quarter financial results that sent the share price climbing 3.9 per cent on high volume. Over 100,000 shares traded, well above the three-month historical daily average trading volume of approximately 43,000 shares. Adjusted earnings per share came in at 44 cents, up from 34 cents reported during the same period last year and surpassing the consensus estimate of 34 cents per share.
On the earnings conference call, President and Chief Executive Officer Garrett Ganden provided a positive outlook stating, "The forward economic indicators for our sector are strong. There is mounting evidence that the Western Canadian market for agriculture equipment has turned around and is returning to normal levels after being depressed for a number of years." He indicated that consumer sentiment and quoting activity remained strong. On the construction side, he noted, "The construction market's definitely coming back. If you look at industry numbers comparatively, the last year to this year, faster than I thought."
In terms of capital allocation, the CEO indicated on the earnings call that they expect to use excess cash to pay down debt and strengthening their balance sheet while they continue their search for the right acquisition opportunities. However, while discussions are ongoing, high prices are a challenge. Mr. Gander commented , "The price expectations are definitely on the high side from what we would typically expect or honestly be willing to pay at this stage."
Dividend policy
Rocky Mountain pays shareholders a quarterly dividend of 11.5 cents per share, or 46 cents per annum, equating to an annualized dividend yield of 3.8 per cent.
Management has maintained its dividend at this level since 2014.
Analysts' recommendations
There are six firms providing research coverage on this security, of which all six analysts have buy recommendations.
The firms providing research coverage are as follows in alphabetical order: CIBC World Markets, Laurentian Bank Securities, National Bank Financial, PI Financial, Raymond James, and TD Securities.
Financial forecasts
The Street is forecasting EPS (earnings per share) of $1.07 in 2017, up from 83 cents reported in 2016, with EPS anticipated to rise to $1.24 in 2018. The consensus earnings before interest, taxes, depreciation and amortization (EBITDA) estimates are $40.2-million in 2017, increasing to $45.1-million in 2018.
Earnings expectations have increased in recent months. For instance, four months ago, the consensus earnings per share estimates were 95 cents for 2017 and $1.08 for 2018, and the consensus EBITDA estimates were $37-million for 2017 and $41.9-million for 2018.
Valuation
According to Bloomberg, on a price-to-earnings basis, Rocky Mountain is trading at a multiple of 9.7 times the 2018 consensus forecast, above its three-year historical average of 8.2 times and slightly below its peak multiple of approximately 10.3 times during this time period. If the stock were to return to a 10.3 times multiple, this would equate to a share price of $12.78.
On an enterprise value-to-EBITDA basis, the stock is trading at a multiple of 5.7 times, above its three-year historical average of 5 times.
The average one-year target price is $14.02, suggesting there may be over 17 per cent upside potential in the share price over the next 12 months. Individual target prices are as follows in numerical order: $12.60, two at $13.50, $14, $14.50, and $15.50.
Revised recommendations
This month, top ranked analyst Cherilyn Radbourne from TD Securities increased her target price to $13.50 from $13, as did Jacob Bout from CIBC World Markets. Greg Colman from National Bank Financial took his target price up by 50 cents to $14. Ben Cherniavsky, the analyst from Raymond James, raised his target price to $14.50 from $13. Jason Zandberg from PI Financial increased his target price to $15.50 (the high on the Street) from $13.
Insider transaction activity
No transactions have been reported by insider since May.
On May 10, the president and chief executive officer Garrett Ganden purchased 4,600 shares at an average price per share of $9.55. That same day, Cameron Crawford, who sits on the board of directors, bought 2,000 shares at an average price of $9.951 per share.
Prior to that, on May 17, Mr. Crawford purchased 2,000 shares at an average price per share of $9.5933, and the previous day, Mr. Ganden acquired 2,190 shares in the public market.
Chart watch
The stock continues to rebound, recovering from a downturn that began in 2013 and lasted until early 2016.
Year-to-date, the share price is up 23 per cent. In 2016, the stock price rallied an impressive 55 per cent.
In terms of key resistance and support levels, there is initial overhead resistance around $12. After that, there is a ceiling of resistance around the $13.50 to $14 levels. Looking at the downside, there is support around $11, close to its 50-day moving average (at $11.18). Failing that, there is support between $10 and $10.50, close to its 200-day moving average (at $10.48).
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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.