It's decision day, with U.S. voters electing a new president today. Ahead of the results, stock markets appear relatively calm as investors await the final results.
In terms of news releases, 14 companies in the S&P/TSX composite index are scheduled to report third-quarter financial results today – Aimia, Alaris Royalty, Cineplex, Crombie REIT, Ensign Energy Services, Great Canadian Gaming, Keyera, Lucara Diamond, Morneau Shepell, Russel Metals, Silver Standard Resources, Stella-Jones, Valeant Pharmaceuticals International, and WSP Global. On the economic front, Canadian housing start and building permits data will be released before the market opens. Meanwhile, in the U.S., the JOLTS job openings figures will be reported at 10 a.m. (ET).
Let's briefly recap what happened on Monday. The S&P/TSX composite index surged 143 points, or 0.99 per cent to close at 14,652. There were 188 securities in the TSX Index that advanced, 58 securities declined in value, and one stock closed the day unchanged. Within the TSX Index, 10 of the 11 sectors closed in positive territory led by strength in the energy and industrials sectors. The materials sector was the sole segment reporting a loss with gold stocks following the price of the yellow metal lower. The price of gold broke below $1,300 (U.S.) an ounce.
The S&P/TSX composite index is down 0.91per cent month to date, down 0.50 per cent quarter to date, and up 12.62 per cent year to date.
On today's TSX Breakouts report, there are 25 stocks on the positive breakouts list (stocks with positive price momentum), and the number of securities on the negative breakouts list (stocks with negative price momentum) dwindled down to 28.
Discussed today is a security that appears on the positive breakouts list and has experienced a parabolic move after it reported better-than-expected third quarter financial results. The stock's valuation has become stretched with the stock's positive price momentum appearing due for a pause. The security I am referring to is Wajax Corp. (WJX-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
Wajax is an industrial products and services provider of equipment such as excavators, dump trucks, mining trucks and shovels, forestry equipment, cranes, road paving equipment. In addition, it supplies industrial components such as bearings, hydraulics, and pumps, as well as power systems including diesel and natural gas engines and transmissions. In terms of its geographical revenue breakdown, in 2015, 44 per cent of the company's revenue was from western provinces, 30 per cent was from eastern provinces, and 26 per cent stemmed from central Canada. In terms of industries it serves, the company's exposures are diversified with 15 per cent of its revenue from the construction market, 15 per cent from transportation, 14 per cent from forestry, 14 per cent from industrial/commercial markets, 10 per cent from oil sands, 9 per cent from mining, 6 per cent from metal processing, 5 per cent to oil and gas, 5 per cent to government and utilities, and the balance stems from other sectors.
Before the market opened on Nov. 1, the company reported better-than-expected third quarter financial results, which sent the share price soaring over 11 per cent that trading day. Revenue was $286.6-million, down from $290.9-million reported during the same period in the prior year, and in-line with the consensus estimate of $286.5-million. However, adjusted earnings per share came in at 37 cents, surpassing the Street's expectations of 19 cents, and unchanged year-over-year. The strong beat was due to cost savings from restructuring initiatives.
The company's outlook is cautiously optimistic. As stated in the recent management's discussion and analysis, "Management's outlook for the remainder of 2016 is that market conditions will remain challenging, particularly in western Canada. However, management expects fourth quarter earnings will continue to benefit from the earnings improvement initiatives implemented in the Power Systems segment and from the completion of the reorganization."
Management has targeted a leverage ratio range of between 1.5 times and 2.0 times, and is above that target at 2.69 times as of Sept. 30.
Wajax pays its shareholders a quarterly dividend of 25 cents per share, or $1 on a yearly basis. This equates to an annualized dividend yield of 4.7 per cent. Management has maintained its dividend at this level since early 2015.
The stock is trading at a high valuation relative to historical levels. According to Bloomberg, shares of Wajax are trading at a price-to-earnings (P/E) multiple of 15 times the 2017 consensus estimate, well above its three-year historical average multiple of 10.4 times. Over the past five years, the prior forward P/E multiple peak was approximately 12 times.
This small-cap industrial company, with a market capitalization of $423-million, is covered by large financial institutions on the Street. Firms providing analyst coverage are as follows: BMO Capital Markets, EVA Dimensions, Raymond James, RBC Capital Markets, Scotia Capital and TD Securities. There are four 'buy' recommendations and two 'hold' recommendation.
The average one-year target price is $19.20, implying the shares are fully valued at current levels. Individual target prices provided by five firms in numerical order are as follows: two at $18, $19, $20, and $21.
The Street is forecasting EBITDA of $62-million in 2016, which is forecast to rise over 17 per cent to $73-million in 2017. The consensus earnings per share estimate is 83 cents in 2016, and forecast to jump to $1.41 in 2017.
In recent days, revisions have been mixed. Revenue outlooks have been falling but earnings per share expectations have increased.
To illustrate, at the start of the year, the consensus revenue estimate was $1.68-billion for 2016 and $1.31-billion for 2017. On Oct. 31, the day before the company reported its third-quarter results, the revenue estimate was $1.24-billion for 2016 and $1.26-billion for 2017. Currently, the consensus revenue estimate is $1.22-billion for 2016 and $1.21-billion for 2017.
Looking at the bottom line, at the beginning of 2016, the earnings per share estimate was $1.68 for 2016 and $1.88 for 2017. On Oct. 31, the earnings per share forecast was 71 cents for 2016 and $1.29 for 2017. Right now, the Street is anticipating earnings per share of 83 cents for 2016 and $1.41 the following year.
The share price has experienced a parabolic move, rallying over 38 per cent in the past five trading sessions after the company reported third-quarter financial results well above expectations. Furthermore, the share price has jumped on high volume. The historical two-month daily average trading volume is approximately 55,000 shares. However, over the past five trading sessions daily volume has ranged from approximately 173,000 shares to roughly 228,000 shares. This recent price strength has moved the share price into positive territory year-to-date, with the stock price up 26 per cent.
The shares have strong overhead resistance between $24 and $25.
There is downside support between $19.50 and $20. Failing that, there is support around $17, and then in the $15 range, where the 50-day moving average lies (at $15.43) and close to its 200-day moving average (at $15.78).
The relative strength index is at 84, suggesting the shares are in overbought territory. Generally, a reading at or above 70 indicates an overbought condition.
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.
Tuesday's TSX breakouts
|Positive Breakouts||Nov. 7 close|
|ATH-T||Athabasca Oil Corp||$1.36|
|CBL-T||Callidus Capital Corp||$18.33|
|CGC-T||Canopy Growth Corp.||$7.25|
|CS-T||Capstone Mining Corp||$0.98|
|CRH-T||CRH Medical Corp||$6.71|
|HLF-T||High Liner Foods Inc||$26.46|
|HBM-T||HudBay Minerals Inc||$6.51|
|IAG-T||Industrial Alliance Insurance & Financial Services Inc.||$51.98|
|LIF-T||Labrador Iron Ore Royalty Corp||$14.80|
|LUN-T||Lundin Mining Corp||$5.54|
|MAL-T||Magellan Aerospace Corp||$18.61|
|MRG.UN-T||Morguard North American Residential REIT||$13.35|
|NCC.A-T||Newfoundland Capital Corp Ltd||$9.90|
|PBH-T||Premium Brands Holdings Corp||$66.52|
|SW-T||Sierra Wireless Inc||$19.60|
|TOY-T||Spin Master Corp.||$34.77|
|SLF-T||Sun Life Financial Inc||$45.18|
|TRI-T||Thomson Reuters Corp||$55.44|
|Y-T||Yellow Pages Ltd||$22.09|
|BOS-T||AirBoss of America Corp||$11.65|
|HOT.UN-T||American Hotel Income Properties REIT LP||$10.34|
|CXR-T||Concordia Healthcare Corp||$2.70|
|KWH.UN-T||Crius Energy Trust||$8.18|
|DGC-T||Detour Gold Corp||$20.07|
|XTC-T||Exco Technologies Ltd||$10.68|
|GMP-T||GMP Capital Inc||$4.45|
|GXO-T||Granite Oil Corp||$4.52|
|GCG.A-T||Guardian Capital Group Ltd||$21.06|
|HGN-T||Halogen Software Inc||$8.84|
|III-T||Imperial Metals Corp||$4.85|
|ISV-T||Information Services Corp.||$17.53|
|NXE-T||NexGen Energy Ltd.||$1.44|
|NHC-T||Nobilis Health Corp||$3.45|
|PTM-T||Platinum Group Metals Ltd||$2.16|
|P-T||Primero Mining Corp||$1.74|
|RSI-T||Rogers Sugar Inc||$6.12|
|SCC-T||Sears Canada Inc||$2.43|
|SRU.UN-T||Smart Real Estate Investment Trust||$32.04|
|TGZ-T||Teranga Gold Corp||$1.00|
|TXG-T||Torex Gold Resources Inc||$21.88|
|TCN-T||Tricon Capital Group Inc||$8.37|