On Wednesday, major North American stock markets delivered mixed results.
In the U.S., the Dow Jones Industrial Average decreased 0.58 per cent, the S&P 500 index lost 0.17 per cent, while the Nasdaq composite index gained 0.23 per cent.
In Canada, the S&P/TSX composite index fell 70 points, or 0.45 per cent. There were 85 securities in the TSX Index that advanced, 162 securities declined in value, and four stocks closed the day unchanged. The leading sector laggards were the materials and energy sectors, falling 1.6 per cent and 1 per cent, respectively, with gold and oil prices both falling.
The TSX Index is up 1.74 per cent year-to-date.
On today's TSX Breakouts report, there are 42 stocks on the positive breakouts list (stocks with positive price momentum), of which 10 securities are from the real estate sector. On the flip side, there are 32 stocks are on the negative breakouts list (stocks with negative price momentum).
Featured today is a stock whose share price has been under pressure. While it does not appear on the negative breakouts list, it is one to watch as further weakness could be a future buying opportunity. The stock has a unanimous buy recommendation from six analysts, along with a 40 per cent anticipated price return. In addition, the company offers investors a 2.8 per cent dividend yield. This stock appears to have become a 'show me' story with investors sitting on the sidelines waiting to see an improvement in the company's financial results before stepping in and accumulating shares. The security I am referred to is Pure Technologies Ltd. (PUR-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
Calgary-based Pure Technologies provides technologies used for inspections (leak detection, condition assessment), monitoring, and the management of infrastructure such as water and wastewater pipelines, and oil and gas pipelines. In 2016, the company's exposure to the water sector represented 81 per cent of revenue and 19 per cent of revenue stemmed from the oil and gas sector.
After the market closed on March 9, the company reported lower-than-expected fourth quarter financial results. Revenue came in at $32-million, just shy of the Street's expectation of $33-million. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $5.2-million, below the consensus estimate of $6.8-million. Reported earnings per share was 3 cents, falling short of expectations of 5 cents.
The company had no debt and $5.4-million of cash on its balance sheet as at December 31.
The earnings disappointment sent the share price falling nearly 2 per cent the following trading day but on low volume with approximately 25,000 shares trading hands. To put this in perspective, the three-month historical daily average trading volume is approximately 74,000 shares.
The company will be reporting its first-quarter results after the market closes on Monday, May 1. Keep in mind, the first quarter is typically the company's weakest quarter.
The company pays its shareholders a quarterly dividend of 3 cents per share, or 12 cents per share on a yearly basis. This equates to an annualized dividend yield of 2.8 per cent.
In the most recent Management's Discussion and Analysis, management stated, "We continue to maintain a strong balance sheet with no debt, and we anticipate being able to service all of our investment needs and dividend payments for 2017 from available cash resources."
There are six analysts who cover this company and all six analysts have buy recommendations. That being said, a skeptic could argue that none of these analysts have had anything but buy recommendations for the stock despite the slide in stock price.
The six firms providing research coverage are as follows in alphabetical order: Canaccord Genuity, Cormark Securities, Echelon Wealth Partners, Laurentian Bank Securities, National Bank Securities, and PI Financial.
In March, numerous analysts revised their target prices, most of which were downward revisions.
Amr Ezzat, the analyst from Echelon Wealth Partners, trimmed his target price to $6.75 from $7. Raveel Afzaal, the analyst from Canaccord Genuity, slashed his target price to $5.50 from $6.75. Mona Nazir, the analyst from Laurentian Bank, chopped her target price to $6 from $7.50. Gavin Fairweather from Cormark Securities, trimmed his target price by 25 cents to $5.75. The one outlier was Jason Zandberg from PI Financial, who increased his target price to $6.50 from $6.25.
The consensus revenue estimates are $136-million for 2017 and $152-million for 2018. The Street is forecasting EBITDA of $20.5-million in 2017, rising to $25-million the following year. The consensus earnings per share forecasts are 12 cents for 2017 and 19 cents for 2018.
Earnings revisions have been negative. For instance, four months ago, the consensus EBITDA estimate was $24.5-million for 2017, and the consensus earnings per share estimate was 14 cents for 2017.
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 9.1 times the 2018 consensus estimate. This is below the three-year historical average multiple of 11.2 times.
The consensus target price is $6.08, suggesting there is 40 per cent upside potential in the share price over the next 12 months. Target prices range from a low of $5.50 (at Canaccord Genuity) to a high of $6.75 (at Echelon Wealth Partners). Individual target prices are as follows in numerical order: $5.50, $5.75, two at $6, $6.50, and $6.75.
Insider transaction activity
In a relatively small transaction on March 21, John Elliott, the president and chief executive officer, acquired 5,500 shares, lifting his portfolio's position to 170,166 shares.
On March 15, Michael Higgins, the senior vice-president of the company's North America operations, purchased 20,000 shares, increasing his portfolio's position to 53,121 shares.
The share price is in a downtrend and the negative price momentum remains intact. Year-to-date, the share price is down nearly 10 per cent.
There is initial downside support between $4.25 and $4.30, and failing that, there is strong support around $4.
Should the stock price rebound, there is overhead resistance around $5, near its 200-day moving average (at $5.14). After that, the next major resistance level is around $6.
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.
|Positive Breakouts||April 19 close|
|AGF.B-T||AGF Management Ltd||$6.70|
|AX.UN-T||Artis Real Estate Investment Trust||$13.72|
|AGB-T||Atlantic Gold Corp.||$1.31|
|APR.UN-T||Automotive Properties REIT||$11.35|
|CAR.UN-T||Canadian Apartment Properties REIT||$34.51|
|CTC.A-T||Canadian Tire Corp Ltd||$165.51|
|CVG-T||Clairvest Group Inc.||$33.99|
|CRH-T||CRH Medical Corp||$12.20|
|KWH.UN-T||Crius Energy Trust||$10.70|
|D.UN-T||Dream Office REIT||$20.17|
|GIL-T||Gildan Activewear Inc||$37.05|
|GRT.UN-T||Granite Real Estate Investment Trust||$49.17|
|IAE-T||Ithaca Energy Inc||$1.95|
|KMP.UN-T||Killam Apartment REIT||$13.15|
|KPT-T||KP Tissue Inc||$16.33|
|MST.UN-T||Milestone Apartments REIT||$21.90|
|NFI-T||New Flyer Industries Inc||$50.33|
|PLC-T||Park Lawn Corp.||$18.50|
|PKI-T||Parkland Fuel Corp||$30.49|
|PBH-T||Premium Brands Holdings Corp||$86.05|
|AAR.UN-T||Pure Industrial Real Estate Trust||$6.47|
|QSR-T||Restaurant Brands International Inc||$75.84|
|RPI.UN-T||Richards Packaging Income Fund||$28.10|
|RCI.B-T||Rogers Communications Inc||$62.36|
|ZZZ-T||Sleep Country Canada||$35.81|
|X-T||TMX Group Ltd||$74.42|
|WCN-T||Waste Connections Inc.||$119.47|
|WSP-T||WSP Global Inc||$48.56|
|ARX-T||ARC Resources Ltd||$18.18|
|BTE-T||Baytex Energy Corp||$4.18|
|BSX-T||Belo Sun Mining Corp||$0.71|
|PXX-T||BlackPearl Resources Inc||$1.21|
|BNP-T||Bonavista Energy Corp||$3.06|
|CWB-T||Canadian Western Bank||$28.21|
|CPX-T||Capital Power Corp||$24.39|
|CS-T||Capstone Mining Corp||$1.04|
|CVE-T||Cenovus Energy Inc||$13.94|
|CNL-T||Continental Gold Inc||$3.29|
|CPG-T||Crescent Point Energy Corp||$13.73|
|FM-T||First Quantum Minerals Ltd||$13.34|
|GMP-T||GMP Capital Inc||$3.40|
|GPR-T||Great Panther Silver Ltd||$1.81|
|HBM-T||HudBay Minerals Inc||$7.97|
|IMO-T||Imperial Oil Ltd||$40.01|
|KDX-T||Klondex Mines Ltd||$4.75|
|LUN-T||Lundin Mining Corp||$7.06|
|MAG-T||MAG Silver Corp||$16.92|
|NG-T||Novagold Resources Inc||$5.79|
|PPY-T||Painted Pony Petroleum Ltd||$5.12|
|PEY-T||Peyto Exploration & Development Corp||$25.74|
|PTM-T||Platinum Group Metals Ltd||$1.72|
|RRX-T||Raging River Exploration Inc||$8.42|
|TKO-T||Taseko Mines Ltd||$1.36|
|TGZ-T||Teranga Gold Corp||$0.70|
|TOU-T||Tourmaline Oil Corp||$28.19|
|TRQ-T||Turquoise Hill Resources Ltd||$3.68|