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On today’s TSX Breakouts report, there are 13 stocks on the positive breakouts list (stocks with positive price momentum), and 49 securities are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a stock that is on the negative breakouts list. This stock experienced blistering growth in its share price in 2020 and 2019; however, the positive price momentum stalled in 2021. Year-to-date, the share price is down 13 per cent with the stock now approaching oversold territory.

Analysts are expecting the share price to rebound. The stock has a forecast average one-year price return of nearly 37 per cent. With a unanimous ‘buy’ recommendation, the stock discussed below is Calian Group Ltd. (CGY-T).

A brief outline on Calian is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.

The company

Ottawa-based Calian is a company that operates four business segments: Health, Advanced Technologies, Information Technology and Learning. Last quarter, 37 per cent of total revenue was classified as Health, 32 per cent was Advanced Technologies, 17 per cent was Information Technology and 13 per cent from its Learning business segment.

The Health business segment includes COVID testing and vaccination services, psychological assessment services with customers such as the Department of National Defence (DND) and the Canada Border Services Agency.

The Advanced Technologies segment includes engineering services and products with customers such as the DND, Inmarsat, the Canadian Space Agency and Ontario Power Generation.

In August, the company signed an agreement to provide antennas to an electric vehicle manufacturer, which is expected to generate revenue of between $5-million and $10-million next year, and will help diversify the company’s revenue mix.

The Information Technology segment includes cloud solutions, IT consulting services and cyber security solutions with customers including the DND, the Toronto Transit Commission (TTC) and Ericsson.

The Learning segment includes custom training and course development with customers that include the DND, the Province of New Brunswick and the City of Victoria.

Investment thesis

  • Revenue stability from government contracts. In fiscal 2020, government revenue accounted for 98 per cent of the Learning segment, 65 per cent of the Information Technology segment, 64 per cent of the Health segment, and 19 per cent of the Advanced Technologies segment. A material percentage of the company’s total revenue stems from the DND.
  • Greater upside potential versus downside risk.
  • Valuation: Stock is inexpensive relative to historical levels.
  • From a technical perspective, the stock is nearing oversold territory.
  • Potential catalysts: 1) contract wins; and 2) large acquisition announcement.
  • Key potential risks include: 1) decelerating revenue growth is forecast, limiting multiple expansion; 2) a pause in significant acquisition growth as management focuses on integrating its recent acquisitions; and 3) stagnant backlog growth.

Quarterly earnings

After the market closed on Aug. 10, the company reported its better-than-expected third-quarter financial results (the company’s fiscal year-end is Sept. 30).

The company reported revenue of $136-million, up 29 per cent year-over-year, and ahead of the consensus estimate of $128.5-million. Strength was evident across the board with the four business segments reporting year-over-year revenue growth ranging from 16 per cent to 63 per cent.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $14.9-million, above the Street’s forecast of $12.3-million and up 66 per cent year-over-year. Adjusted earnings per share came in at 98 cents per share, surpassing the consensus estimate of 59 cents per share.

The company signed $113-million in contracts and exited the quarter with a backlog of $1.315-billion (contracted backlog reflects future revenue).

The company has a healthy balance sheet with $56-million of cash at quarter-end. The company did not complete any acquisitions in the third-quarter. The following trading day, the share price rallied 3 per cent.

Management increased its fiscal 2021 guidance, now calling for revenue to be between $500-million and $525-million, adjusted EBITDA to be between $49-million and $52.5-million, and adjusted net profit to be between $34.85-million and $38.15-million.

The company will be releasing its fourth-quarter fiscal 2021 financial results after the market closes on Nov. 24. The consensus revenue, EBITDA, and earnings per share estimates are $129-million, $12.3-million, and 59 cents, respectively. On Nov. 25 at 8:30 a.m. (ET), management will be hosting a webcast to discuss its quarterly results.

Dividend policy

A significant percentage of the company’s revenue stems from contracts with the Canadian government. Given the relative stability of its government customers, the company has paid its shareholders a consistent quarterly dividend.

The company pays its shareholders a quarterly dividend of 28 cents per share, or $1.12 per share yearly, equating to a current annualized yield of 1.9 per cent.

The quarterly dividend has been maintained at 28 cents per share since 2012.

Analysts’ recommendations

With a market capitalization of $651-million, the stock is covered by six analysts, according to Refinitiv, and all have “buy” recommendations.

The firms providing research coverage on the company are: Acumen Capital, Canaccord Genuity, Cormark Securities, Desjardins Securities, Echelon Capital Markets and Laurentian Bank Securities.

Revised recommendations

The most recent revisions occurred in August, after the company released its third-quarter financial results.

Desjardins’ Benoit Poirier, lifted his target price to $78 from $77, while Acumen’s Jim Byrne, increased his target to $82 from $79 and Laurentian Bank’s Nick Agostino raised his target to $74.25 (the low on the Street) from $72.50.

Financial forecasts

The Street is forecasting revenue of $520-million in fiscal 2021, up from $432-million reported in fiscal 2020, with revenue expected to rise 6 per cent to $553-million in fiscal 2022. The consensus EBITDA estimates are $51.5-million in fiscal 2021, and anticipated to jump 15 per cent to $59.4-million in fiscal 2022. The consensus earnings per share estimates are $3.45 in fiscal 2021 and $3.62 the following year.

Earnings expectations have been rising. Four months ago, the Street was forecasting revenue of $512-million in fiscal 2021 and $545-million in fiscal 2022. EBITDA forecasts were $49.9-million for fiscal 2021 and $58.5-million for fiscal 2022. The consensus earnings per share estimates were $3.18 for fiscal 2021 and $3.49 for fiscal 2022.

Valuation

The stock is trading relatively in-line or just below its five-year historical average multiples.

According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 10.3 times the fiscal 2022 consensus estimate, in-line with its five-year historical average multiple of 10.2, and well below its peak multiple of 16 times during this time period. On a price-to-earnings basis, the stock is trading at 15.9 times the fiscal 2022 estimate, below its five-year historical average of 16.7 times and well below its peak multiple of 24 times during this time period.

The average one-year target price is $78.79, implying the share price has nearly 37 per cent upside potential over the next year. Individual target prices are as follows in numerical order: $74.25 (from Laurentian Bank’s Nick Agostino), $76.50, $77, $78, $82, and $85 (from Echelon’s Amr Ezzat).

Insider transaction history

Quarter-to-date, there has not been any trading activity in the public market reported by insiders.

Chart watch

The share price has stalled in 2021 after a blistering run-up over the prior two years. In 2020 and 2019, the share price rallied 72 per cent and 31 per cent, respectively. However, 2021 is a different story.

Year-to-date, Calian is one of the worst performing stocks in the S&P/TSX Small Cap Industrials sector index with its share price falling 13 per cent.

The share price is nearing oversold territory. The relative strength index (RSI) is at 35. Generally, an RSI reading at or below 30 represents an oversold condition.

Looking at key technical support and resistance levels, the stock is nearing strong downside support around $55. On a rebound, the stock has major resistance between $65 and $67, and then around $70, close to its record closing high of $69.95 reached in Oct. 2020.

This stock is thinly traded, which can increase volatility in the share price. The three-month historical daily average trading volume is approximately 21,000 shares.

Please note that this report is not an investment recommendation.

POSITIVE BREAKOUTSNov. 19 close
CIGI-TColliers International Group Inc $183.54
CSU-TConstellation Software Inc $2,249.95
DNTL-Tdentalcorp Holdings Ltd. $18.20
JWEL-TJamieson Wellness Inc. $40.22
KXS-TKinaxis Inc $229.10
LAC-TLithium Americas Corp $47.48
NWH-UN-TNorthWest Healthcare Properties REIT $13.64
OPS-TOpsens Inc. $3.56
QIPT-XQuipt Home Medical Corp. $8.66
SHOP-TShopify Inc. $2,139.82
STN-TStantec Inc $72.21
TRI-TThomson Reuters Corp $156.01
TRIL-TTrillium Therapeutics Inc $23.33
NEGATIVE BREAKOUTS
VNP-T5N Plus Inc $2.58
ABST-TAbsolute Software Corp $11.70
ARE-TAecon Group Inc $16.94
ALA-TAltaGas Ltd $24.72
AND-TAndlauer Healthcare Group Inc. $44.45
ADW-A-TAndrew Peller Ltd $8.27
ACQ-TAutoCanada Inc $35.43
BDGI-TBadger Infrastruture Solution $32.25
BYD-TBoyd Group Services Inc. $203.92
BRAG-TBragg Gaming Group Inc. $8.22
CAE-TCAE Inc $35.27
CGY-TCalian Group Ltd. $57.70
CTC-A-TCanadian Tire Corp Ltd $173.72
CFX-TCanfor Pulp Products Inc $6.20
CRDL-TCardiol Therapeutics Inc. $2.63
CIA-TChampion Iron Ltd. $3.74
CGG-TChina Gold International Resources Corp. $3.34
CCA-TCogeco Communications Inc $98.95
CGO-TCogeco Inc $78.79
CJR-B-TCorus Entertainment Inc $5.35
FC-TFirm Capital Mortgage Investment Corp $14.29
FOOD-TGoodfood Market Corp. $4.39
HAI-THaivision Systems Inc. $7.17
IVQ/U-TInvesque Inc. $1.69
KBL-TK-Bro Linen Inc. $35.30
KEY-TKeyera Corp $29.66
LAS-A-TLassonde Industries Inc $157.68
LSPD-TLightspeed POS Inc. $73.59
MDF-TMDF Commerce Inc. $5.04
DR-TMedical Facilities Corp $8.05
MRT-UN-TMorguard Real Estate Investment Trust $5.54
MTY-TMTY Food Group Inc. $60.25
MTL-TMullen Group Ltd $12.06
NFI-TNew Flyer Industries Inc $22.41
ONC-TOncolytics Biotech Inc $2.19
PKI-TParkland Fuel Corp $34.20
QBR-B-TQuebecor Inc $28.88
SCL-TShawCor Ltd $4.64
SMT-TSierra Metals Inc $1.72
SOT-UN-TSlate Office REIT $4.97
TRP-TTC Energy Corp. $60.23
THNC-TThinkific Labs Inc. $8.99
TMD-TTitan Medical Inc $0.94
TCL-A-TTranscontinental Inc $18.91
VLNS-TValens Company Inc. $4.74
WM-TWallbridge Mining Company Limited $0.46
WELL-TWell Health Technologies Corp. $6.27
WED-XWestaim Corp. $2.57
WRN-TWestern Copper and Gold Corp. $1.80

Source: Bloomberg and The Globe and Mail

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.

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