On today’s TSX Breakouts report, there are 20 stocks on the positive breakouts list (stocks with positive price momentum), and 42 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a stock that is just 3 per cent away from appearing on the positive breakouts list.
Since listing on the Toronto Stock Exchange in July 2017, the share price has soared 64 per cent and is up over 15 per cent year-to-date. Insiders have been adding to their positions. Last month, the company hiked its quarterly dividend by 12.5 per cent, offering investors a yield of 1.4 per cent. The stock has a unanimous buy recommendation from six analysts.
The security highlighted today is Jamieson Wellness Inc. (JWEL-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Toronto-based Jamieson Wellness manufactures and distributes natural health products. The Jamieson brand is the best-selling brand in Canada in the VMS (vitamins, minerals, and supplements) market. The company sells its products in 40 countries and management sees further international expansion opportunities into new markets such as Mexico, India and Southeast Asia. In addition to international growth opportunities, demand is forecast to rise driven by an aging population seeking nutritional supplements and a growing consumer appetite for products aimed at improving physical health and wellness.
The Chinese market is a region that management believes offers significant revenue growth potential.
On Aug. 8, the company announced that it had received its first Orange Hat registration certificate from China’s Food and Drug Administration, allowing the company to market its products in the Chinese marketplace. Management expects having up to 20 Orange Hat registrations by the end of 2019.
On the earnings conference call, president and chief executive officer Mark Hornick saidd, “So we’re very pleased to report that we’ve received our first Orange Hat registration certification from China’s Food and Drug Administration. This, along with our three existing Blue Hat registrations, provides the opportunity for Jamieson to launch into both the Chinese domestic ecommerce and Chinese domestic retail channels. The completion of our first Orange Hat registration is also expected to allow us to accelerate future registration, shortening the application and approval timeline. We anticipate having up to 20 Orange Hat registrations by the end of 2019, and to support this growing opportunity, we’ve extended our distribution agreement with our long-term partner for an additional five years, which incidentally includes the right for Jamieson to acquire that distributor at the end of the agreement. Our Chinese partner maintains the exclusive right during this time to distribute Jamieson-owned brands through cross-border e-commerce, as well as domestic and online channels. In addition, we’ve established our fully-owned foreign entity in China, now to better service global retail partners currently excluded from our Chinese distribution license."
He added, “We’ve secured office and warehousing space in Shanghai and we’re currently recruiting for general management and quality positions at this location in order to support our initiatives in China. To give you a reference point, to date our distributor has been selling 50 Canadian-made products in China through the cross-border e-commerce channel, which is, as we’ve mentioned before, basically a virtual duty-free store. We can now enter the much larger domestic market, both online and at retail, as well as selling to global players directly from our Chinese operation. This significantly expands our future opportunity in China and is consistent with our long-term international growth strategy.”
Last month, management increased their revenue guidance outlook for 2018, now guiding to revenue of between $330-million and $340-million, up from between $325-million and $335-million. Management maintained its EBITDA and earnings per share outlooks, expecting adjusted EBITDA of between $67-million and $69-million in 2018, up between 10 per cent and 13 per cent year-over-year. Adjusted earnings per share is expected to rise to between 83 cents and 87 cents, up between 19 per cent and 24 per cent year-over-year.
The company employs a hedging program in order to mitigate currency risk.
Dividend policy
The company pays its shareholders a quarterly dividend of 9 cents per share or 36 cents per share on a yearly basis, translating to an annualized dividend yield of 1.4 per cent.
Last month, the company announced a 12.5 per cent increase in its dividend, raising it to its present level of 9 cents per share quarterly from 8 cents per share. On the earnings call, the President and Chief Executive Officer reflected on the dividend hike stating, “This reflects our continued confidence in achieving our business objectives, including a strong level of projected free cash flow that enables us to fund the increase with no material impact to our future capital allocation options.”
Analysts’ recommendations
This small-cap consumer staples stock with a market capitalization just under the $1-billion mark (at $983-million) has recent research coverage by six analysts and every single analyst have a buy recommendation.
The firms providing recent research coverage on the company are as follows in alphabetical order: BMO Capital Markets, Canaccord Genuity, National Bank Financial, RBC Capital Markets, Scotia Capital, and TD Securities.
Revised recommendations
In August, two analysts revised their expectations – both higher. Sabahat Khan from RBC Capital Markets took his target price up to $29 from $27, and Derek Dley from Canaccord Genuity lifted his target price to $28 from $26.
Financial forecasts
The Street is forecasting revenue of $335-million in 2018, up from $300.6-million in 2017, and $361-million in 2019. The consensus EBITDA estimates are $68-million in 2018, up from $61.5-million in 2017, and anticipated to reach $79-million in 2019. The consensus earnings per share estimates are 86 cents in 2018 and $1.06 in 2019.
Revenue estimates have been rising. For instance, three months ago, the consensus revenue estimates were $330-million for 2018 and $352-million for 2019. While EBITDA and earnings per share estimates have held steady and are relatively unchanged.
Valuation
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 14.6 times the 2019 consensus estimate, below its peak multiple of 15.5 times but above its historical average of 13.6 times.
The average 12-month target price is $28.50 implying the share price has 10 per cent upside potential over the next year. Individual target prices are as follows in numerical order: $26 (the low on the Street is from the analyst at Scotia Capital), two at $28, two at $29, and $31 (the high on the Street is from the analyst at TD Securities).
Insider transaction activity
Year-to-date, there has only been buying activity reported by insiders.
Most recently, on Aug. 13, chairman David Williams purchased 10,000 shares at a price per share of $25.996, increasing his account’s holdings to 85,000 shares.
Prior to that, on June 13, director Heather Allen bought 2,000 shares at a cost per share of $27.055, initiating a portfolio position.
On May 29, director Catherine Potechin acquired 2,000 shares at an average price per share of $24.125, taking her account balance up to 2,500 shares.
On March 12 and March 13, the company’s vice-president of finance robert chan purchased 300 shares and 1,150 shares, respectively, at a price per share around the $20.60 level, increasing his account’s holdings to 21,997 shares.
Lastly, director Steve Spooner acquired 2,500 shares on Feb. 28, initiating a portfolio position.
Chart watch
The stock has limited trading history making technical analysis a challenge. The stock began trading on the Toronto Stock Exchange in July 2017.
The stock has been a strong performer, rising 64 per cent from its initial public offering price of $15.75. Year-to-date, the share price is up a respectable 15 per cent.
Looking at key resistance and support levels, the stock price has an initial ceiling of resistance around $28, just above its record closing high of $26.67 reached on Aug. 17. After that, there is overhead resistance around $30. In terms of the downside, there is technical support between $24 and $25, close to its 50-day moving average (at $25.64).
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