On Monday,U.S. market action was muted. The Dow Jones Industrial Average fell 0.04 per cent, the S&P 500 index lost 0.20 per cent, while the Nasdaq composite index inched up 0.01 per cent.
In Canada, the S&P/TSX composite index retreated 48 points, or 0.31 per cent. There were 105 securities in the TSX Index that advanced, 141 securities declined in value, and five stocks closed the day unchanged. Only one sector in the Index finished the day in positive territory.
The TSX Index is up 1.01 per cent year-to-date.
On today's TSX Breakouts report, there are 21 stocks on the positive breakouts list (stocks with positive price momentum), and 37 stocks are on the negative breakouts list (stocks with negative price momentum), of which, nearly half the companies are energy stocks.
Featured today is a security which may soon appear on the positive breakouts list. The stock price just broke above its 50-day moving average and this breakout may be the start of a near-term rally. This Friday, the company will be reporting its seasonally strong fourth quarter earnings results, and positive results could propel the stock price higher. The company I am referred to is BRP Inc. (DOO-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Quebec-based BRP manufactures and markets powersports vehicles and propulsion systems. Products manufactured include roadsters, all-terrain vehicles, snowmobiles, and personal watercrafts with brand names such as Can-Am, Lynx, Ski-Doo, and Sea-Doo.
In terms of geographical revenue breakdown, during the first nine months of fiscal 2017, 50.8 per cent of its revenue was from the U.S., 30.7 per cent was international, and 18.5 per cent was from Canada. The company's fiscal year end is Jan. 31. As such, there are foreign exchange currency exposures to consider. The company reports in Canadian dollars; however, the majority of its revenues are denominated in U.S. dollars.
There is a high degree of seasonality in its business. BRP will be reporting its fourth-quarter financial results before the market opens on Friday March 24. This is the company's strongest seasonal period, when the company generates the majority of its revenues. The Street is forecasting earnings before interest, taxes, depreciation and amortization (EBITDA) of $204-million and earnings per share (EPS) of 95 cents.
Last quarter, the company reported better-than-expected third quarter financial results that sent the share price soaring over 9 per cent. Normalized EBITDA came in at $196.9-million, surpassing the consensus estimate of $168-million, and normalized EPS was 93 cents, well above the Street's forecast of 75 cents.
On the third-quarter conference call, Sebastien Martel, the chief financial officer, highlighted a risk to consider, stating, "I think the big dark cloud above our heads is everything related to NAFTA… And we'll learn more as times evolve. But for us today, we see business as usual until there's more clarity as to what, if any, changes will be happening to NAFTA agreement."
Returning capital to shareholders
The company does not pay its shareholders a dividend. However, the company has been actively repurchasing shares. During the first nine month of calendar 2016, the company repurchased 3,396,074 shares as part of its normal course issuer bid.
Analyst recommendations
According to Bloomberg, 14 firm provide research coverage on the company, of which 12 analysts have "buy" recommendations, and two analysts have "hold" recommendations.
The 14 firms providing research coverage are as follows in alphabetical order: Baird, BMO Capital Markets, Canaccord Genuity, CIBC World Markets, Desjardins Securities, EVA Dimensions, GMP, Morningstar, National Bank Financial, Northcoast Research, RBC Capital Markets, Scotia Capital, UBS, and Wells Fargo Securities.
Revised recommendations
In 2017, only one analyst has revised his recommendation. In January, Neil Fonseca, the analyst from EVA Dimensions, increased his recommendation to an "overweight" from a "hold."
Financial forecasts
Analysts anticipate the company will deliver solid earnings growth. The Street is forecasting EBITDA of $504-million in fiscal 2017, increasing over 7 per cent to $542-million in fiscal 2018, and rising to $586-million in fiscal 2019. The consensus EPS estimates are $1.92 in fiscal 2017, rising 12 per cent to $2.15 in fiscal 2018, and expected to reach $2.37 in the following fiscal year.
Financial expectations have been relatively stable. For instance, five months ago, the consensus EBITDA estimates were $497-million for fiscal 2017 and $540-million for fiscal 2018. The consensus EPS estimates were $1.88 for fiscal 2017 and $2.10 for fiscal 2018.
Valuation
BRP trades at a discount to its historical multiple. On an enterprise value-to-EBITDA basis, the stock trades at a multiple of 7.5 times the consensus fiscal 2018 estimate, which is slightly below its three-year historical average multiple of 8.1 times.
The average one-year target price is $32.44, which implies the share price may potentially increase 16 per cent over the next 12 months. Individual price targets provided by 11 firms are as follows in numerical order: $26, $30, three at $32, five at $33, and $34.
Insider transaction activity
So far in 2017, no insider transaction activities have been reported.
Chart watch
The stock price has been in an uptrend for over the past year, roughly doubling in value during this period, and making BRP the third best performing stock in the S&P/TSX composite index consumer discretionary sector in 2016.
The stock price recently broke above its 50-day moving average, and the next resistance level is just below the $30 level, between $29 and $29.50. Should the share price break above $30, the next overhead resistance level is around $32.
Should the positive price momentum fade, there is downside support around $25, which is close to its 200-day moving average (at $24.66). Failing that, there is strong support between $22 and $22.50.
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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.