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Inside the Market Friday’s TSX breakouts: Enjoying a post-earnings price spike, this stock gained an analyst upgrade

On today’s TSX Breakouts report, there are 21 stocks on the positive breakouts list (stocks with positive price momentum), and 58 securities are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a security that appeared on the positive breakouts list earlier this week. The share price has spiked over 22 per cent since the company reported better-than-expected third quarter financial results on Nov. 5. As a result, the share price may pullback to the $50 level now that the buying frenzy post the quarter has passed. Given the company’s solid growth profile and fair valuation, the stock is one to watch.

The security I am referring to is Great Canadian Gaming Corp. (GC-T).

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

The company

B.C.-based Great Canadian Gaming operates 28 gaming properties with operations in British Columbia, Ontario, New Brunswick, Nova Scotia, and in Washington State.

After the market closed on Nov. 5, the company reported better-than-expected third quarter financial results that sent the share price soaring. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $140.6-million, surpassing the consensus estimate of $101-million.

In the earnings release, president and chief executive officer Rod Baker stated, “Our third quarter results reflected a full three months of operations from the West GTA Gaming Bundle, which is under Great Canadian’s management since May 1, 2018, and approximately one month of new revenues for Casino Woodbine generated from the introduction of table games and additional slot machines. We expect the new table games, which have been well received by the market, to help develop our customer base.” He noted on the earnings call, “On August 30, 2018, the company announced expanded gaming at Casino Woodbine on its second level, which introduced 50 gaming tables and over 500 slot machines, including electronic table games. The addition of 50 table games was a significant milestone for the company, marking the first time live dealer table games are available within the Greater Toronto Area. In October -- in early October 2018, Casino Woodbine added further gaming capacity on its third level, bringing the total gaming capacity to approximately 3,700 slot machines and 100 table games. We expect these new table games, which have been well received by the market, to help build our customer base.”

The CEO provided guidance on the management’s growth objectives, “Our development plans for the GTA Gaming Bundle are progressing well. In addition to the expanded gaming at Casino Woodbine, we are also proceeding with our plans to transform this facility into an international casino resort destination which is expected to complete in 2021. We are currently constructing another world-class casino resort in the eastern GTA, with the new casino targeted to open by end of 2019, with development plans for the hotel and theatre to follow afterwards. Construction of the new casino building addition has also started at Great Blue Heron, which is targeted to complete by the end of 2018. Renovations to the existing facility are expected to complete by the first half of 2019 with the new hotel to be opened by end of 2019.”

The company has been actively repurchasing shares as part of its share buyback program. During the third quarter, the company repurchased 278,600 shares at a weighted average price per share of $46.02.

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Dividend policy

Management is focused on growth an currently does not pay its shareholders a dividend.

Analysts’ recommendations

There are five analysts covering this mid-cap stock with a market capitalization of $3.2-billion, of which three analysts have buy recommendations and two analysts have hold recommendations.

The five firms providing recent research coverage on the company are as follows in alphabetical order: Canaccord Genuity, Cormark Securities, RBC Capital Markets, Scotia Capital, and TD Securities.

Revised recommendations

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This week, Damir Gunja, the analyst from TD Securities, upgraded the stock to a “buy” call from a “hold” recommendation and lifted his target price to $70 (the high on the Street) from $51. Sabahat Khan, the analyst at RBC Capital Markets, tweaked his target price higher to $64 from $63. Derek Dley from Canccord Genuity raised his target price to $60 from $55. George Doumet from Scotia Capital bumped his target price to $57 from $51.50. While David McFadgen, the analyst from Cormark Securities, has maintained his target price at $44 (the low on the Street). Mr. McFadgen has not had a ‘buy’ recommendation on the stock since the first half of 2017.

Financial forecasts

Steady growth is forecast for the company. The Street is forecasting EBITDA of $386-million for 2018, increasing 15 per cent to $445-million in 2019. The consensus earnings per share estimates are $2.57 in 2018, rising to $3.02 in 2019.

There have been slight revisions in earnings expectations, the consensus EBITDA estimates have drifted lower while the earnings per share forecasts have increased. For instance, two months ago, the Street was forecasting EBITDA of $401-million for 2018 and $463-million for 2019. The consensus earnings per share estimates were $2.53 for 2018 and $2.91 for 2019.

Valuation

The stock is trading at an enterprise value-to-EBITDA multiple of 7.7 times the 2019 consensus estimate, slightly above its historical three-year average of 7.3 times but below its peak multiple of nearly 9.5 times during this time period. Analysts will soon be rolling forward their target price calculations to be based on their 2020 earnings expectations, making the stock’s valuation more compelling so that it is relatively in-line with its historical average.

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The consensus target price is $59, suggesting there just under 14 per cent upside potential. Individual target prices are as follows in numerical order: $44, $57, $60, $64 and $70.

Insider transaction activities

During the third quarter, there was only one trade reported by an insider.

On Sept. 27, Darren Gwozd, vice-president – operations finance, purchased 1,200 shares at a price per share of $46.501, taking his portfolio’s position up to 1,400 shares. This was the most recent trade reported by an insider and it was a relatively small transaction. The total cost of this purchase amounted to over $55,000.

Chart watch

This week, the share price made a sharp move higher, rising over 22 per cent on strong volume. Consequently, the share price may pullback slightly to around the $50 level as the stock digests these rapid gains realized.

The relative strength index (RSI) is indicating that the stock is currently in overbought territory with a reading of 77. Generally, an RSI reading at or above 70 indicates an overbought condition.

Looking at key overhead resistance and downside support levels, there is initial overhead resistance around $55, near its record closing high of $55.66 reached on June 12. There is initial downside support around $45, near its 50-day moving average (at $44.75). Failing that, there is support around $40.

Year-to-date, Great Canadian Gaming’s share price is up nearly 54 per cent, making it the second-best performing stock in the S&P/TSX composite consumer discretionary sector, behind Canada Goose Holdings Inc. (GOOS-T) whose share price is up over 99 per cent.

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.

Positive Breakouts Nov. 8 close
BCE-T BCE Inc $53.98
CTC.A-T Canadian Tire Corp Ltd $166.10
DPM-T Dundee Precious Metals Inc $3.67
FTS-T Fortis Inc $45.09
GIL-T Gildan Activewear Inc $42.24
HSM-T Helius Medical Technologies Inc. $14.04
HLS-T HLS Therapeutics Inc. $16.10
JE-T Just Energy Group Inc $4.96
LIF-T Labrador Iron Ore Royalty Corp $30.38
LGO-T Largo Resources Ltd. $4.59
L-T Loblaw Cos Ltd $57.70
MRU-T Metro Inc $42.87
MRG-UN-T Morguard North American Residential REIT $17.24
NSU-T Nevsun Resources Ltd $5.89
ORL-T Orocobre Ltd. $4.35
PSI-T Pason Systems Inc $22.59
QBR.B-T Quebecor Inc $27.23
SUM-T Solium Capital Inc $12.14
SYZ-T Sylogist Ltd. $14.70
TRI-T Thomson Reuters Corp $63.30
TC-T Tucows Inc. $77.41
Negative Breakouts
BOS-T AirBoss of America Corp $10.89
AGI-T Alamos Gold Inc $5.00
AD-T Alaris Royalty Corp $18.04
CLIQ-T Alcanna Inc. $8.55
ALC-T Algoma Central Corp $11.80
AIF-T Altus Group Ltd $26.40
HOT-UN-T American Hotel Income Properties REIT LP $7.60
USA-T Americas Silver Corp $2.52
ATH-T Athabasca Oil Corp $1.20
ATA-T ATS Automation Tooling Systems Inc $17.89
BDI-T Black Diamond Group Ltd $2.65
BBD.B-T Bombardier Inc $2.41
BNE-T Bonterra Energy Corp $11.91
CFX-T Canfor Pulp Products Inc $19.70
CPX-T Capital Power Corp $26.25
CNL-T Continental Gold Inc $2.24
DII.B-T Dorel Industries Inc $19.81
FVI-T Fortuna Silver Mines Inc $4.88
FRII-T Freshii Inc. $2.63
FEC-T Frontera Energy Corp. $15.65
GXE-T Gear Energy Ltd $0.74
GMP-T GMP Capital Inc $1.81
GSY-T goeasy Ltd $38.76
GPR-T Great Panther Silver Ltd $0.72
HDI-T Hardwoods Distribution Inc $12.19
HLF-T High Liner Foods Inc $7.02
IMG-T IAMGOLD Corp $4.31
IDG-T Indigo Books & Music Inc $12.79
JWEL-T Jamieson Wellness Inc. $18.85
KEL-T Kelt Exploration Ltd $5.74
KEY-T Keyera Corp $30.42
LNR-T Linamar Corp $49.79
MPC-T Madison Pacific Properties Inc. $3.65
MRD-T Melcor Developments Ltd $13.48
MRT-UN-T Morguard Real Estate Investment Trust $11.18
MPVD-T Mountain Province Diamonds Inc $1.99
NVA-T NuVista Energy Ltd $4.97
OBE-T Obsidian Energy Ltd. $0.89
PSH-T Petroshale Inc. $1.42
PSK-T PrairieSky Royalty Ltd $19.61
PG-T Premier Gold Mines Ltd $1.69
RME-T Rocky Mountain Dealerships Inc $9.31
VII-T Seven Generations Energy Ltd $12.85
SCL-T ShawCor Ltd $21.60
SOT-UN-T Slate Office REIT $7.54
STLC-T Stelco Holdings Inc. $18.77
STEP-T STEP Energy Services Ltd. $3.33
SRX-T Storm Resources Ltd. $2.05
SOY-T SunOpta Inc. $7.18
SGY-T Surge Energy Inc $1.83
THO-T Tahoe Resources Inc $3.04
TVE-T Tamarack Valley Energy Ltd. $3.11
TIH-T Toromont Industries Ltd $59.59
TV-T Trevali Mining Corp $0.46
TCW-T Trican Well Service Ltd $1.59
VET-T Vermilion Energy Inc $32.49
WED-T Westaim Corp. $2.76
WCP-T Whitecap Resources Inc $6.06

Source: Bloomberg

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