On today’s TSX Breakouts report, there are 35 stocks on the positive breakouts list (stocks with positive price momentum), and 14 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a stock that is 3 per cent away from appearing on the positive breakouts list. The stock offers its shareholders a monthly dividend, equating to an annualized yield of over 3 per cent. This stock has a unanimous buy recommendation from 16 analysts with expectations lifted after the company announced an acquisition that was completed at the end of June.
The security highlighted today is TORC Oil & Gas Ltd. (TOG-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Calgary-based TORC Oil & Gas is oil-weighted, focused on light oil assets in southeast Saskatchewan, a Cardium play in central Alberta, as well as its Torquay/Three Forks light oil resource play in southeast Saskatchewan.
On May 8, the company reported first-quarter financial results that were relatively in-line with expectations with production of 22,984 barrels of oil equivalent per day (boe/d) and adjusted cash flow per share of 32 cents. Of note was an acquisition announcement. In the earnings release, the company announced its plans to acquire a company with over 3,200 boe/d of, “high quality, low decline, high netback, light oil producing assets”.
In addition, the company stated that the acquisition is expected to be, “very complementary to TORC’s existing operations in southeast Saskatchewan and provide operating and strategic synergies.” The company has a healthy balance sheet with a pro forma net debt-to-cash flow ratio of approximately 1 times. Given the planned acquisition, management revised its 2018 production guidance higher, expecting production to average 24,700 boe/d up from 23,000 boe/d, and to exit the year with production at 27,000 boe/d up from its previous guidance of 23,800 boe/d. The acquisition was completed at the end of June.
The Canada Pension Plan Investment Board is the largest shareholder with an ownership position of over 20 per cent of the shares outstanding. Ownership by insiders stands at approximately 4 per cent.
The company is scheduled to report its second quarter financial results after the market closes on August 8. The Street is anticipating production of 22,881 boe/d and cash flow per share of 35 cents.
Dividend policy
The company pay shareholders a monthly dividend of 2.2 cents per share, or 26.4 cents per share yearly. This equates to an annualized dividend yield of 3.4 per cent.
On May 8, management announce a 10 per cent dividend increase, lifting the monthly dividend to 2.2 cents per share from 2 cents per share. This was the first dividend change since early 2016, when management announced a dividend cut, slashing the monthly dividend from 4.5 cents per share to 2 cents per share. Management took this capital preservation approach due to the steep decline in the price of oil. In February 2016, the price of oil was just above U.S. $26 per barrel.
Analysts’ recommendations
This small-cap stock with a market capitalization of $1.6-billion is well covered by the Street. According to Bloomberg, since the company reported its first-quarter financial results in early May, 16 analysts have issued research reports on the stock, and all 16 analysts have buy recommendations.
Revised recommendations
Earlier this month, three analysts revised their target prices – all higher. Jeremy McCrea from Raymond James increased his target price to $10 from $9.50. Kris Zack, the analyst from Desjardins Securities, lifted his target price to $10.50 from $10. Christopher Jones from Haywood Securities raised his target price to $11 from $9.
Financial forecasts
The current consensus cash flow per share estimates are $1.48 in 2018, rising 9 per cent to $1.62 in 2019.
Financial forecasts have been rising. For instance, three months ago, the consensus cash flow per share estimates were $1.30 for 2018 and $1.38 for 2019.
Valuation
Analysts commonly value the stock based on an enterprise value-to-debt-adjusted cash flow multiple.
The consensus one-year target price is $10.19, implying the share price has 30 per cent upside potential over the next 12 months. Target prices range from a low of $9.50 to a high of $11. Individual target prices are as follows in numerical order: four at $9.50, $9.75, four at $10, $10.25, two at $10.50, four at $11.
Insider Transaction Activity
Year-to-date, there has only been one net transaction in the market. On March 7, Mary-Jo Case, who sits on the board of directors, purchased 14,730 shares at a price per share of $6.11, initiating a portfolio position.
Chart watch
Year-to-date, the share price is up approximately 4 per cent, trading between $6 and $8.
Looking at key resistance and support levels, the stock has overhead resistance between $8 and $8.50. After that, the next ceiling of resistance is around $10. Looking at the downside, there is initial technical support around $7, close to its 200-day moving average (at $6.88). Failing that, there is support around $6.
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