On today's TSX Breakouts report, there are 67 stocks on the positive breakouts list (stocks with positive price momentum), and 20 stocks are on the negative breakouts list (stocks with negative price momentum).
Featured today is a dividend stock that was profiled in this report exactly one year ago. Since then, the share price has rallied 42 per cent. The stock has been a strong performer over the years for investors with the share price rising 44 per cent in 2016, more than doubling in value in 2015, and rallying 27 per cent in 2014. Management is firmly committed to returning capital to its shareholders and five months ago, in May, the company announced a 37 per cent dividend hike. The stock's dividend yield is currently at 2.4 per cent. The stock may resurface on the positive breakouts list in the near future. For the past four quarters, the share price has rallied the day after the company reported its quarterly earnings results. The security I am referring to is New Flyer Industries Inc. (NFI-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Winnipeg-based, New Flyer is North America's largest transit bus manufacturer and motor coach maker and parts supplier.
After the market closed on August 9, the company reported better-than-expected second quarter earnings results that sent the share price climbing 2.4 per cent the following day. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was a record setting $85.1-million, beating the consensus estimate of $80.5-million. Earnings per share was 69 cents, seven cents above the consensus estimate. Also positive, management revised its fiscal 2017 guidance higher, expecting to deliver roughly 3,800 EUs (equivalent units) up from its previous guidance of 3,750 EUs, each EU represents a transit bus or motor coach. Financial figures are all expressed in U.S. dollars, unless otherwise noted.
In a news release from Oct. 16, management announced that their backlog stood at 10,537 EUs as at the end of the third quarter.
Looking ahead, on Nov. 8, the company will be reporting its third-quarter financial results. The Street is anticipating revenue of $560-million, earnings before interest, taxes, depreciation and amortization (EBITDA) of $72-million, and earnings per share of 53 cents. For the past four quarters, the share price has rallied the day after the company released its quarterly results.
Dividend policy
The company pays its shareholders a quarterly dividend of 32.5 cents (Cdn) per share, or $1.30 (Cdn) per share yearly. This equates to an annualized dividend yield of 2.4 per cent.
The free cash flow payout ratio was 33 per cent for the first half of 2017, suggesting the dividend is sustainable with room to increase in the future. In May, management announced a 37 per cent dividend hike, lifting the quarterly dividend to its present level of 32.5 cents per share from 23.75 cents per share.
Analysts' recommendations
The mid-cap stock, with a market capitalization of $3.37-billion, has ample research coverage by analysts. This month, seven analysts have issued research reports on the company, of which six have buy recommendations and one analyst (from BMO Capital Markets) has a 'market perform' recommendation with a $57 target price.
The seven analysts issuing recent research reports are as follows in alphabetical order: AltaCorp Capital, BMO Capital Markets, CIBC World Markets, GMP, National Bank Financial, Scotia Capital and TD Securities.
Revised recommendations
Earlier this month, Kevin Chiang, the analyst from CIBC World Markets, reduced his target price to $59 from $61. In addition, Chris Murray, the analyst from AltaCorp Capital trimmed his target price by $3 to $62.
Financial forecasts
The consensus EBITDA estimates are $312-million (U.S.) in 2017 and anticipated to rise to $332-million the following year. The Street is forecasting earnings per share of $2.44 in 2017 rising to $2.55 in 2018.
Earnings revisions have been modestly positive. For instance, three months ago, the consensus EBITDA estimates were $308-million for 2017 and $328-million for 2018. The consensus earnings per share estimates were $2.37 in 2017 and $2.53 cents in 2018.
Valuation
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 9.5 times the 2018 consensus estimate, which is above its three-year historical average of 7.7 times, and at the top of its historical range during this period.
Similarly, on a price-to-earnings basis, the stock is also trading at a high valuation, currently trading at 16.6 times the 2018 consensus estimate, above its three–year historical average of 12.2 times and just below its peak multiple of 17.3 times.
The average 12-month target price is $61.29 (Canadian), implying the share price has 14 per cent upside potential over the next year. Individual target prices are as follows in numerical order: $57, $59, $60, two at $62, $63 and $66.
Insider transaction activity
Last month, Paul Smith, executive vice-president – sales, marketing, and customer program management, was an active seller in the market. He sold 10,000 shares on Sept. 28, eliminated 10,000 shares from his account on Sept. 26, divested 4,700 shares on Sept. 8, and sold 20,300 shares on Sept. 7. After these four transactions, his portfolio held 115,698 shares.
Chart watch
Year-to-date, the stock price has rallied 31 per cent making New Flyer the fourth best performing stock in the S&P/TSX composite industrial sector index (out of 26 members). Air Canada is the leader with its share price soaring 93 per cent so far this year, followed by Toromont Industries Ltd., and Bombardier Inc.
In terms of key resistance and support levels, there is initial overhead resistance around $55, and after that around $56.50 (near its record closing high of $56.52 set back in June). The stock has a solid floor of support around the $50 level, which is close to its 200-day moving average (at $49.98).
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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.