On Tuesday, major U.S. stock markets drifted lower. The Dow Jones Industrial Average declined 0.23 per cent, the S&P 500 index dipped 0.28 per cent, and the Nasdaq composite index fell 0.33 per cent.
It was a different picture in the Canada market with the S&P/TSX composite index closing the day with a 0.36-per-cent gain. There were 141 securities in the TSX Index that advanced, 101 securities declined in value, and eight stocks closed the day unchanged.
Year to date, the TSX Index is up 1.16 per cent. In the U.S., the Dow Jones Industrial Average is up 6.95 per cent, the S&P 500 index has increased 8.51per cent, and the Nasdaq composite has rallied 16.57 per cent.
On today's TSX Breakouts report, there are 29 stocks on the positive breakouts list (stocks with positive price momentum), and 27 stocks are on the negative breakouts list (stocks with negative price momentum).
Featured today is a security that appears on the positive breakouts list. The stock is a top performer in the S&P/TSX composite index year to date, rallying 56 per cent, and analysts are forecasting nearly 25 per cent further upside. Management recently initiated a dividend and insiders have been accumulating shares. The security I am referring to is Kirkland Lake Gold Ltd. (KL-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Kirkland Lake Gold is a mid-tier gold producer operating underground mines in regions with low geopolitical risks, Canada and Australia.
On May 4, management revised its 2017 gold production expectations higher, now targeting gold production of between 530,000 ounces and 570,000 ounces, up from its previous guidance of between 500,000 ounces and 525,000 ounces. Operating cash costs are anticipated to come in at between $475 per ounce and $525 per ounce, and all-in sustaining costs are anticipated to be between $850 per ounce and $900 per ounce.
In the first-quarter Management's Discussion and Analysis, management stressed its close relationship to gold prices stating, "The price of gold is a significant factor affecting profitability and cash flow of the company and therefore, the financial performance of the company is expected to be closely linked to the price of gold. The price of gold is subject to volatile price fluctuations over short periods of time and can be affected by numerous macroeconomic conditions, including supply and demand factors, the value of the U.S. dollar, interest rates, and global economic and political issues. The price of gold has continued to climb higher in the month of April 2017, at certain points closing over $1,280 per ounce. This recent rise in the price of gold, can be attributed, in part, to the increasing geopolitical tension between the U.S. and Syria and North Korea, as well as continuing issues faced by the new U.S. administration including policy changes following the U.S. presidential election." Management believes the current backdrop is positive for the price of gold.
Dividend policy
On March 29, the company announced the initiation of a quarterly dividend. Kirkland Lake Gold pays shareholders a quarterly dividend of 1 cent per share (Cdn), or 4 cents per annum, equating to an annualized dividend yield of 0.4 per cent.
On the earnings conference call, the chief financial officer Philip Yee highlighted that the initiation of a dividend reflects management's "confidence in the company's growth profile and ability to generate free cash flow."
Analysts' recommendations
There are 10 firms providing research coverage on this mid-cap stock, of which nine analysts have buy recommendations, and one analyst has a 'market perform' recommendation or hold recommendation.
The 10 firms providing research coverage are as follows in alphabetical order: BMO Capital Markets, CIBC World Markets, EVA Dimensions, GMP, M Partners, Macquarie, National Bank Financial, PI Financial, RBC Capital Markets, and Scotia Capital.
Financial forecasts
The consensus cash flow per share estimates are $1.41 in 2017, increasing to $1.50 in 2018. The Street is forecasting earnings per share of 52 cents in 2017, rising to 68 cents in 2018. These financial figures are reported in U.S. dollars.
Forecasts have increased in recent months. For instance, three months ago, the consensus cash flow per share estimates were $1.07 (U.S.) for 2017 and $1.24 for 2018.
Valuation
The stock is commonly valued on a price-to-net asset value basis. However, another popular valuation metric is price-to-cash flow. According to Bloomberg, the stock is trading at a price-to-cash flow multiple of 5.4 times the 2018 consensus estimate.
The average one-year target price is $13.66, suggesting there may be nearly 25 per cent upside potential in the share price over the next 12 months. Individual target prices provided by nine firms are as follows in numerical order: $11.50, $12.50, $12.75, $12.95, $13, $14.50, $14.75, $15 and $16.
Revised recommendations
Last month, three analysts revised their target prices – all higher. Raj Ray, the analyst from National Bank Financial increased his target price to $15 from $14.25. Michael Siperco from Macquarie lifted his target price to $16 from $14, and Philip Ker, the analyst from PI Financial, tweaked his target price higher by 45 cents to $12.95.
Insider transaction activity
Eric Sprott, the chairman of the board of directors, purchased 1.3 million shares in the public market over three recent trading sessions. On June 1, he purchased 300,000 shares at an average price per share of $10.0663. On May 25, he bought 193,500 shares at an average price per share of $10.1606, and the previous day, he accumulated 806,500 shares at an average price of $10.0051 per share.
Prior to that, on May 8, Philip Yee, the chief financial officer, acquired 32,000 shares at an average price per share of $9.05 on May 8, increasing his portfolio's position to 65,000 shares. That same day, director Arnold Klassen doubled his portfolio's position, adding 10,000 shares at an average price per share of $9.0232.
Chart watch
Year to date, the share price is up 56 per cent, making it the top performing gold stock in the S&P/TSX composite index so far this year.
In terms of key support and resistance levels. These is strong support around $10, which is close to its 50-day moving average (at $9.86) and failing that, there is support around $8, near its 200-day moving average (at $8.89). The share price is approaching major initial overhead resistance around $11.
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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 indices 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.
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