On today’s TSX Breakouts report, there are 16 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).
As always, I like to feature a variety of stocks to appeal to a wide range of investors. Discussed today is an outperforming small-cap stock that may resurface on the positive breakouts list if analysts’ expectations are correct. While the share price has soared 53 per cent year-to-date, the average target price suggests that the stock price may rise an additional 57 per cent over the next 12 months, fuelled by strong revenue growth. This small-cap stock is thinly traded, resulting in heightened share price volatility at times. Consequently, this stock is best suited for consideration by investors with a high risk tolerance. The security highlighted today is Macro Enterprises Inc. (MCR-X).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Fort St. John, B.C.-based is a pipeline contractor, providing construction and maintenance services to energy companies with operations focused in western Canada. The company’s key customers include TransCanada, Pembina, Enbridge, FortisBC, AltaGas and Shell.
On Nov. 22, the company reported its third quarter financial results. Revenue was $41.6-million, up from $39.1-million reported during the same period last year. EBITDA [earnings before interest, taxes, deprecation and amortization] was $5.7-million, up from $2.3-million reported last year. Earnings per share was 5 cents, up from 2 cents reported the previous year. The following trading day, the share price increased 5 per cent on high trading volume. Management provided strong top line guidance, forecasting revenue to come in at over $170-million in 2018, and rising to over $250-million in 2019.
In a news release issued on Oct. 9, management indicated that they received a Full Notice to Proceed from TransCanada Corp. (TRP-T) on the Coastal GasLink Pipeline Project. Construction is scheduled to begin in the first quarter of 2019. Upon completion, the pipeline will transport natural gas from the Dawson Creek area in northern B.C. to Kitimat, B.C., after which, the natural gas will be converted to a liquid form that can be exported. Macro has a 40/60 joint partnership agreement with Spiecapag Canada Corp. (a subsidiary of Vinci S.A., which is a global infrastructure company based out of France). The estimated total value of this project exceeds $900-million.
Insiders have a significant stake in the company, owning approximately 33 per cent of the shares outstanding.
Dividend policy
The company does not pay its shareholders a dividend.
Analysts’ recommendations
This small-cap stock, with a market capitalization of $100-million, is covered by three analysts. All three analysts have ‘buy’ recommendations.
The firms providing research coverage on the company are as follows in alphabetical order: Cormark Securities, Paradigm Capital and PI Financial.
Revised recommendations
Last week, Devin Schilling, the analyst from PI Financial, raised his target price to $4.25 from $4.
Financial Forecasts
The consensus revenue estimates are $166-million for 2018 jumping to $304-million in 2019. The consensus EBITDA estimates are $6.4-million in 2018, rising to $31.9-million in 2019. In 2018, the Street is anticipating the company will report an earnings per share loss of 1 cents, with earnings per share forecast to climb to 48 cents in 2019.
The Street’s forecasts have jumped higher over the course of this year. To illustrate, six months ago, the consensus revenue estimates were $80-million for 2018 and $148-million for 2019. The Street was forecasting EBITDA of $2.7-million for 2018 and $16.2-million for 2019.
Valuation
According to Bloomberg, the stock is trading at enterprise value-to-EBITDA multiple of 2.3 times the 2019 consensus estimate. Over the past year, the stock has traded at a forward EV/EBITDA multiple as high as 3.6 times and as low as 1.1 times. On a price-to-earnings basis, the stock is trading at a multiple of 6.9 times the 2019 consensus estimate.
The average one-year target price is $5.17, implying the stock price may appreciate nearly 57 per cent over the next 12 months. Individual target prices are as follows in numerical order: $4.25, $4.50 and $6.75 (the high on the Street is from Jason Tucker, the analyst at Paradigm Capital).
Insider transaction activity
Year-to-date, there has not been any trading activity reported by insiders.
Chart watch
Year-to-date, the share price is up 53 per cent.
This small-cap stock is thinly traded, the three-month historical daily average trading volume is approximately 38,000 shares. Consequently, the share price can be very volatile. For instance, in Sept., the stock price rallied 13 per cent but in Oct., the share price declined 15 per cent. Since mid-June, the share price has been zigzagging, repeatedly rising and falling, in a range between $2.70 and $3.60. The share price is currently approaching the upper end of this trading band.
Looking at key resistance and support levels, the share price has a major ceiling of resistance between $3.50 and $3.65. After that, the next major overhead resistance level is around $4. Looking at the downside, there is initial technical support around $3, near its 50-day moving average (at $3.09). Failing that, the next level of technical support is around $2.70, close to its 200-day moving average (at $2.73).
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.
Jennifer Dowty