Wednesday’s TSX breakouts: This dividend stock avoided Tuesday’s market dip

With the downdraft in the S&P/TSX composite index on Tuesday, the list of stocks on the positive breakouts list (securities with positive price momentum) was small at just 17 names. Meanwhile, the list of stocks on the negative breakouts list (stocks with negative price momentum) expanded slightly to 11 securities.

Discussed today is a stock that is steadily closing in on its 2015 high and is just 11 per cent away from it, Magellan Aerospace Corp. (MAL-T). While the TSX Index was down over 1-per cent on Tuesday, this stock was up 1.5 per cent, on high volume – a bullish technical sign. Over 100,000 shares of Magellan were traded, well above the two-month average daily volume of approximately 59,000 shares.

A brief outline is provided below that may serve as a springboard for further fundamental research.

The company

Magellan is a global supplier of products serving the aerospace industry, military and space markets, and to the industrial power generation market.

The company is expected to report its first-quarter results later this month. The consensus earnings per share estimate (EPS) is 36 cents. For the past two quarters, the company has delivered better-than-anticipated earnings results, sending the stock price higher each time. After the market closed on March 22, the company reported a solid earnings beat, reporting fourth-quarter EPS of 44 cents, above the consensus estimate of 36 cents, lifting the stock price higher by nearly 4 per cent the following trading day.

Dividend policy

The company instituted a quarterly dividend in 2013 and since then has been steadily increasing it. In November, management announced a 4.5-per-cent increase to its quarterly dividend, raising it to 5.75 cents per share up from 5.5 cents per share. This equates to a yearly dividend of 23 cents per share, or an annualized yield of 1.3 per cent.

Valuation

On a price-to-earnings basis, the stock is trading at 11 times the 2017 consensus earnings estimate. According to Bloomberg, the stock is trading at a premium to its three-year average of 9 times forward earnings, but is still trading below its peak multiple of nearly 14 times over the past three years, suggesting there could be room for further multiple expansion.

Analysts' recommendations

According to Bloomberg, this small cap industrial stock, with a market capitalization just over $1-billion, has three buy recommendations. There are no hold nor sell recommendations. The average one-year price target is $22.17, suggesting the stock price may appreciate 24 per cent. Individual price targets are as follows: $20, $22.50, and $24.

The consensus EBITDA estimate is $169-million in 2016, up from $151.7-million in 2015, and anticipated to rise to $180-million in 2017. The consensus EPS estimate is $1.48 in 2016, up from $1.36 in 2015, and forecast by the Street to increase to $1.61 in 2017.

Chart watch

Year-to-date, this stock price has appreciated a respectable 11 per cent. While this small cap stock is not in the S&P/TSX composite industrial sector, it has outperformed the sector's performance year-to-date.

The stock price is nearing overhead resistance, which lies just above the $18 level, and after that, there is strong resistance at $20.

Shares of Magellan Aerospace have downside support around $16, close to its 50-day moving average (at $16.02) and 200-day moving average (at $16.43), and failing that, there is strong support at $14.

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.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.

Below is a list of securities principally from the S&P/TSX composite index and the S&P/TSX Small Cap index that are technically breaking out, reaching new 55-day highs or lows. Securities on the positive breakouts list have displayed positive price momentum during this period. Securities on negative breakouts list have experienced negative price momentum.