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Inside the Market Monday’s TSX breakouts: A dividend stock that rallied during the market meltdown

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

Very few stocks are on the positive breakouts list given the recent market weakness. However, several weeks ago, the stock discussed today climbed to an all-time high. During the fourth quarter market meltdown, this stock held its value with its share price rallying 5 per cent, while the S&P/TSX composite index tumbled 11 per cent. The security featured today is Rogers Communications Inc. (RCI.B-T). In 2019, this stock may return to the positive breakouts list with its share price less than 3 per cent away from its record closing high.

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

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The company

Rogers Communications is Canada’s largest wireless provider in Canada, and a leading provider of cable television and internet services.

In October, the company reported better-than-expected third-quarter financial results. Revenue expanded 3 per cent year-over-year while adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] grew 8 per cent year-over-year. Adjusted earnings per share came in at $1.21, exceeding the consensus estimate of $1.17 and up from $1.07 reported during the same period last year. Management increased its earnings guidance for 2018, anticipating adjusted EBITDA growth of between 7 per cent and 9 per cent, up from its previous guidance of between 5 per cent and 7 per cent. Free cash flow growth expectations were also lifted to between 5 per cent and 7 per cent up from between 3 per cent and 5 per cent. The company targets blended ARPU [average revenue per user] growth of between 2 per cent and 4 per cent for the year. Also positive, the company’s debt leverage ratio ticked down to 2.5 times.

The company is expected to report its fourth-quarter results before the market opens on January 24. The Street is forecasting revenue of $3.88 billion, EBITDA of $1.5-billion, and earnings per share of $1.09 during the final quarter of 2018.

The stock is dual-listed, trading on both the Toronto Stock Exchange and on the New York Stock Exchange.

Dividend policy

Rogers pays its shareholders a quarterly dividend of 48 cents per share, or $1.92 per share on a yearly basis. This equates to an annualized dividend yield of 2.7 per cent. Management has maintained its dividend at this level since early 2015.

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Analysts’ recommendations

There are 21 analysts covering this company, of which 11 analysts have buy calls, nine analysts have hold recommendations, and one analyst (from Morningstar) has a ‘sell’ recommendation.

The average one-year target price is $72.88, implying the share price has just 4 per cent upside over the next 12 months. Target prices range from a low of $60 (from the analyst at Morningstar) to a high of $80 (from the analyst at TD Securities).

Revised recommendations

Last week, Adam Shine, the analyst from National Bank Financial, upgraded the stock to an ‘outperform’ recommendation from a ‘sector perform’ and he lifted his target price to $78 from $71.

Financial forecasts

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The Street is forecasting earnings per share of $4.27 in 2018, rising 7 per cent to $4.57 in 2019, and forecast to climb to $4.98 in 2020.

Earnings forecasts have steadily increased. For instance, three months ago, the consensus earnings estimates were $4.21 for 2018 and $4.51 for 2019.

Valuation

According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 8.3 times the 2019 consensus estimate, below its three-year historical average multiple of 8.8 times.

After the company reports its fourth-quarter financial results, many analysts will be rolling forward their valuations so that they are based on 2020 earnings estimates.

Insider transaction activities

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Looking back to the beginning of November, there have not been any transactions in the public market reported by insiders.

Chart watch

Long-term shareholders have benefited from the stock’s rising share price.

The stock price has a major ceiling of resistance around $72, near its record closing high of $71.72 reached on Dec. 6. After that, the next major resistance level is around $75. Looking at the downside, there is initial technical support around $65, which is close to its 200-day moving average (at $65.07). Failing that, the next support level is around $60.

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.

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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 Jan. 4 close
ALC-T Algoma Central Corp $13.13
ATP-T Atlantic Power Corp $2.99
AAAA-T Auralite Investments Inc. $1.49
DPM-T Dundee Precious Metals Inc $3.78
INE-T Innergex Renewable Energy Inc $13.16
MAG-T MAG Silver Corp $10.72
SJR.B-T Shaw Communications Inc $25.56
TH-T Theratechnologies Inc $9.48
TOT-T Total Energy Services Inc $10.44
Negative Breakouts
CLS-T Celestica Inc $11.60
IDG-T Indigo Books & Music Inc $10.65
KML-T Kinder Morgan $4.92
MAV-T MAV Beauty Brands Inc. $9.65

Source: Bloomberg

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