North American stock markets may start the month of March off with gains following a positive speech given by U.S. President Donald Trump before Congress on Tuesday.
Today, key news announcements of interest to investors include the following reports.
In terms of earnings releases for Canadian stocks, six companies in the S&P/TSX composite index are scheduled to release their quarterly results, they are: WSP Global Inc. (WSP-T), National Bank of Canada (NA-T), Gran Tierra Energy Inc. (GTE-T), Granite Real Estate Investment Trust (GRT.UN-T), Secure Energy Services Inc. (SES-T), and Artis Real Estate Investment Trust (AX.UN-T).
In terms of economic reports, the Bank of Canada will be announcing its interest rate decision and is anticipated to maintain its overnight rate at half a per cent. In the U.S., the February Manufacturing Purchasing Managers' Index, the February ISM manufacturing index, weekly mortgage applications figures, and February vehicle sales released from automakers are among the main reports. The U.S. Federal Reserve will also be releasing its Beige Book.
Briefly recapping Tuesday's stock market returns, major North American stock markets closed in the red with slight losses.
In the U.S., the Dow Jones Industrial Average declined 0.12 per cent, the S&P 500 index fell 0.26 per cent, and the Nasdaq composite index lost 0.62 per cent.
Turning to Canada, the S&P/TSX composite index gave up 64 points, or 0.42 per cent with eight of the 11 sectors realizing losses. There were 105 securities in the TSX Index that advanced, 140 securities declined in value, and four stocks closed the day unchanged.
The TSX Index is up 0.73 per cent year-to-date. The TSX Index declined 1.1 per cent during the month of February.
On today's TSX Breakouts report, there are 21 stocks on the positive breakouts list (stocks with positive price momentum), and 53 stocks are on the negative breakouts list (stocks with negative price momentum).
Discussed below is security that appears on the positive breakout list. It recently experienced a bullish 'golden cross' technical pattern. The security offers investors a 5.9 per cent yield. The security is H&R Real Estate Investment Trust (HR.UN-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The REIT
H&R REIT has a diversified portfolio of North American real estate assets containing office properties, retail properties, industrial properties, and residential properties.
In addition to asset class diversification, H&R has geographic diversification with its 33.6 per cent interest in ECHO Realty LP, which owns properties focused on grocery anchored shopping centres located in the U.S.
At the end of 2016, H&R held a total of 522 properties, 331 in the United States, 100 in Ontario, 43 in Alberta, and 48 in other regions. Overall same-asset occupancy was 96 per cent last year.
In terms of tenants, the REIT is fairly diversified with only one tenant representing more than 10 per cent of revenue, Encana Corporation. Bell Canada is the second largest tenant, representing 8 per cent of H&R's rental income. The top 15 tenants represent 52 per cent of revenue.
On Feb. 15, H&R reported better-than-expected fourth quarter financial results. Funds from operations (FFO) was 47 cents per unit, two cents above the Street's expectations.
Insiders, the CEO, founders and trustees, have a vested interest, owning approximately 6 per cent of the REIT.
Distribution policy
The company pays unitholders a monthly distribution of 11.5 cents per unit, or $1.38 yearly per unit. This equates to an annualized yield of 5.9 per cent. Several months ago, in November, management announced a 2 per cent distribution increase.
In 2016, the FFO payout ratio was 71 per cent suggesting the distribution is sustainable.
Valuation
H&R REIT is trading at a price-to-FFO multiple of 12 times the consensus 2018 estimate, in-line with the five-year historical average multiple.
The consensus one-year target price is $25.36, implying the unit price may appreciate almost 8 per cent over the next 12 months. Target prices range from a low of $24 (at Raymond James) to a high of $26.50 (at BMO Capital Markets). Individual price targets are as follows in numerical order: $24, $24.50, two at $25, $25.50, $25.75, two at $26, and $26.50.
Analysts' recommendations
According to Bloomberg, nine analysts have issued recent research reports, seven analysts have "buy" recommendations, and two analysts have "hold" recommendations.
The nine firms providing analysts coverage are as follows in alphabetical order: BMO Capital Markets, Canaccord Genuity, CIBC World Markets, Desjardins Securities, National Bank Financial, Raymond James, RBC Capital Markets, Scotia Capital, and TD Securities.
Revised target prices
In February, several analysts raised their target prices higher. Heather Kirk, the analyst at BMO Capital Markets, lifted her target price to $26.50 from $26. Sam Damiani, from TD Securities, bumped his target price to $25 from $24. Neil Downey, from RBC Capital Markets, increased his target price by $1 to $25. Lastly, Jenny Ma, the analyst from Canaccord Genuity, raised her target price by 50 cents to $25.50.
Financial forecasts
The consensus funds from operations (FFO) estimate is $1.88 in 2017 and $1.94 in 2018. The Street is forecasting adjusted funds from operations (AFFO) of $1.68 in 2017 and $1.72 the following year.
Chart watch
The chart appears attractive with the unit price trading above rising 50-day and 200-day moving averages. Year-to-date, the unit price is up over 5 per cent.
The units recently experienced a bullish 'golden cross' with the REIT's 50 day-moving average (currently at $22.57) crossing above its 200-day moving average (currently at $22.46). Also positive is the high trading volume. For instance, on Tuesday, over 1.8-million shares traded, well above the three-month historical daily average trading volume of approximately 920,000 shares.
Other bullish signals include the rising MACD and the Chaikin Money Flow oscillator turned positive last month. Furthermore, the relative strength index is rising but not in overbought territory.
For the past five years, the unit price has traded principally between $21 and $24. The unit price is approaching this upper boundary. A breakout out over $24, may clear the path for the unit price to return to its early 2015 peak of over $25.
There is initial downside support around $22, and failing that around $21.
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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.
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 in 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.