On today's TSX Breakouts report, there are 29 stocks on the positive breakouts list (stocks with positive price momentum) and 58 stocks are on the negative breakouts list (stocks with negative price momentum).
Featured today is a stock that appeared on the negative breakouts list earlier this week but its share price rebounded sharply on Tuesday after the company reported its quarterly results. The company highlighted below is Enercare Inc. (ECI-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Toronto-based Enercare provides water heaters, furnaces, air conditioners and HVAC (heating, ventilation, and air conditioning) rental products, as well as services such as protection plans to its customers. The company's operations can be segmented into three core businesses: Service Experts, Home Services, and sub-metering. In the third-quarter, 54 per cent of the company's revenue was from Service Experts, 35 per cent of revenue was from Enercare Home Services, and the balance, 11 per cent, was from sub-metering. Enercare has operations in Canada and the United States.
Before the market opened on Tuesday, the company reported lower-than-expected third quarter financial results. This shortfall was widely anticipated due to challenging weather conditions, which the President and Chief Executive Officer John Macdonald highlighted on the conference call stating, "There were 40 per cent fewer cooling degree days this year than last year. This meant that demand for air conditioning sales and rentals were lower than last year." In addition to the cooler weather, installations declined in Florida due to hurricane activity.
Consequently, revenue came in at $326-million, up 3 per cent year-over-year, but shy of the consensus estimate of $330-million. Acquisition adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $78.1-million, below the Street's forecast of $80.5-million. Despite the earnings miss, the share price rallied 3.6 per cent on high volume. Buyers came into the market and accumulated shares as there was bright side to the financial results – growth. Furthermore, the outlook across all three of the company's business segments is positive.
Service Experts realized 12 per cent growth in its HVAC and water heater originations. Also positive, management increased its guidance, now expecting annualized synergies from the acquisition of Service Experts (acquired in 2016) of between 8 cents and 11 cents per share by year-end, an increase from its previous guidance of between 5 cents and 8 cents per share.
In Home Services, there were 3,000 net rental unit additions during the quarter. Rental rate hikes of approximately 3 per cent on water heaters boosted revenue. Additionally, the number of protection plans increased by 2,000 during the quarter to 549,000. Protection plan were expanded to include electrical protection plans. Next year, the company will be rolling out a home monitoring service, allowing customers to control their heating, and cooling appliances remotely through a mobile app.
Lastly, the sub-metering segment reported 12 per cent growth in billable units. Management anticipates this growth will continue in 2018, explaining, "We have a large install to billable backlog that we estimate will start to come online next year. It takes an average of three years between deciding on a sub-metering agreement and the on boarding of a metering customer from new condominiums -- the metering condominiums. [Given] the current backlog, we expect higher than average new construction installations will commence in 2018."
Management also anticipates there may be potential acquisition growth opportunities given the highly fragmented industry.
Dividend policy
The company pays its shareholders a monthly dividend of 8 cents per share, or 96 cents per share on a yearly basis. This equates to an annualized dividend yield of 4.8 per cent.
Management has announced a dividend increase in every calendar year since 2011 with two hikes announced in 2013. The company's most recent dividend increase was announced in March, amounting to a 4 per cent dividend hike.
Analysts' recommendations
This mid-cap dividend stock with a market capitalization of $2.1-billion is covered by seven analysts on the Street and every single analyst has a buy recommendation.
The seven firms providing research coverage on the company are as follows in alphabetical order: Accountability Research, Desjardins Securities, Laurentian Bank Securities, National Bank Securities, RBC Capital Markets, Scotia Capital, and TD Securities.
Revised recommendations
On Nov. 14, Damir Gunja, the analyst from TD Securities, upgraded the stock to a "buy" recommendation from a "hold" recommendation but maintained his target price of $23.
Financial forecasts
The Street is forecasting EBITDA of $295-million in 2017, rising over 10 per cent to $327-million in 2018.
Earnings expectations have been stable, relatively unchanged for months. For instance, five months ago, the consensus EBITDA estimates were $298-million for 2017 and $327-million for 2018.
Valuation
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 9.7 times the 2018 consensus estimate, above its three-year historical average of 8.7 times but below its peak multiple of approximately 10 times during this time period.
Soon, valuations will roll forward and be based on the 2019 consensus estimate making the stock's valuation more compelling.
The average 12-month target price is $24.33, implying the share price has 21 per cent upside potential over the next year (including the dividend this equates to a total expected return of nearly 26 per cent). Target prices range from a low of $23, implying there is 14 per cent upside potential (not including the dividend yield) to a high of $26, suggesting there is 29 per cent upside potential.
Individual target prices are as follows in numerical order: $23, three at $24, $24.50, $25, and $26.
Insider transaction history
There has not been any buying or selling activity in the public markets reported by insiders since May. On May 17, the company's Chief Financial Officer Evelyn Sutherland bought 5,000 shares at an average price per share of $18.10. The previous day, she acquired 5,000 shares at an average cost per share of $18.50.
Chart Watch
From Oct. 20 until Nov. 13, the share price declined 7 per cent. Consequently, last Friday, the relative strength index dipped below 30, suggesting the stock was in oversold territory. Generally, a reading at or below 30 indicates an oversold condition.
The share price is rebounding with buyers coming back into the stock. On Tuesday, the share price rallied 3.6 per cent on notably high volume, Over 1-million shares traded, well above the three-month historical daily average trading volume of approximately 300,000 shares.
If the positive momentum can continue, the stock price may rally back to $21. After that, there is a ceiling of resistance around $22, close to its it record closing high of $21.70, which was set back in May of this year.
The stock price has downside support around $19.50. Failing that, there is support around $18.
Year-to-date, the share price is up a respectable 13 per cent.
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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.