On today’s TSX Breakouts report, there are 34 stocks on the positive breakouts list (stocks with positive price momentum), and nine securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a dividend stock that analysts believe will continue to recover from a downtrend that had been in place throughout all of 2018. Consequently, this dividend stock has become a value play, trading at a discount relative to its historical averages. For patient investors, the upside potential may outweigh the downside risk. The stock has five buy recommendations and two hold calls with an anticipated one-year price return of 25 per cent along with a 4 per cent dividend yield. The security highlighted today is Intertape Polymer Group Inc. (ITP-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
With headquarters in Montreal and Sarasota, Fla., Intertape develops and manufactures products, such as carton sealing tapes and industrial and specialty tapes and fabrics, used in industrial, automotive, and aerospace applications.
With more than half of company’s revenue stemming from tapes, Intertape is the second largest tape manufacturer in North America. To illustrate its tape products, the company produces water-activated tapes, so when Amazon leaves a package at your door, the water-activated tape will stay secure on the box. In addition, companies, such as Amazon, are able to package their delivery boxes with printed tapes promoting products such as Amazon Food Prime or events like Amazon Prime Day. Intertape has facilities worldwide with the majority of its plants located in North America (17 plants are located in the United States and five are in Canada), one is in Portugal, and two facilities are located in India (which will expand to four operating facilities in the first half of this year).
Before the market opened on Nov. 8, the company reported its third-quarter financial results that exceeded the Street’s expectations, sending the share price soaring 5 per cent that day.
Revenue came in at US$279-million, above the consensus estimate of US$272-million, and up 14.6 per cent year-over-year. Gross margin was 21.1 per cent, up from 20.9 per cent reported during the same period last year. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was US$37.6-million, relatively in-line with the Street’s expectations of US$37-million and up 15.9 per cent year-over-year. The adjusted EBITDA margin was 13.5 per cent. Adjusted earnings per share came in at 34 US cents, surpassing the consensus estimate of 26 US cents.
O Feb 27, president and chief executive officer Gregory Yull presented at the 2019 Bank of America Merrill Lynch global agricultural and materials conference and remarked on the company’s near-term growth drivers, “Number one is to continue to leverage our e-commerce position, broaden the product portfolio that we’re able to sell into them… and certainly, sell up and scale-load our second line in our new plant in North Carolina [which doubled the capacity of that facility]. Number two is the start-up and optimization of our greenfield plants in India in the first half of this year and into the second half and it’s important to note that these plants, like many plants, it’s not a light switch, right? It takes a while for these to ramp up over time to get the optimal efficiencies…but that will ramp up as we look into 2019, 2020 and ’21… And then the last is to complete the integration of the acquisitions. I referenced the fact that we purchased a protective packaging company in August of last year. There is a lot of work left to be done…We’ve shown a pretty good progression of the EBITDA…a lot of the acquisitions that we purchased, they have been below Intertape’s average margin profile and a lot of the work that we’ve done and some of the reasons why we bought these companies is we believe we can get them to Intertape’s margin levels or above by cost take outs and things of that nature. But certainly, we’ve shown a nice progression... So bottom line, when I think of where the company is, we spent the last three years investing heavily in the business between capital expenditures, focused primarily on low-cost, world-class assets, and focusing on strategic M&A [merger and acquisitions] so as we look to 2019, 2020, it’s a time where the company should do very well as we start generating cash flow from a lot of the investments that have already been made, that are sitting on our balance sheet as debt and not generating any cash flow as we move forward.”
The company will be reporting its fourth-quarter earnings results before the market opens on Wed. March 13 and holding a conference call at 10 a.m. (ET).
The consensus revenue, EBITDA and earnings per share estimates are US$282.4-million, US$39.4-million and 28 US cents.
Returning capital to shareholders
The company pays its shareholders a quarterly dividend in U.S. dollars of 14 cents per share, or 56 cents per share yearly. This equates to an annualized dividend yield of 4.1 per cent. The dividend has been maintained at this level since 2016.
In July 2018, the company renewed its share buyback program, allowing it to repurchase up to 4-million shares. As at Nov. 7, the company had not repurchased any shares.
This small-cap stock with a market capitalization of $1.06-billion is covered by seven analysts, of which five analysts have buy recommendations and two analysts have hold recommendations.
The firms providing research coverage on the company are as follows in alphabetical order: Cormark Securities, GMP FirstEnergy, Industrial Alliance Securities, National Bank Securities, RBC Capital Markets, Scotiabank, and TD Securities.
So far this year, one analyst has revised his expectations. In January, Michael Doumet, the analyst at Scotiabank, increased his target price to $25 from $24.
The consensus revenue estimates are US$1.05-billion in 2019, rising 14 per cent to US$1.197-billion in 2019. The Street is anticipating EBITDA of US$141-million in 2018, increasing 18 per cent to US$167-million in 2019. The consensus earnings per share estimates are US$1.02 in 2018, climbing to US$1.19 the following year.
In Nov., with the release of its third-quarter financial results, management guided to adjusted EBITDA of between US$140-million and US$143-million in 2018.
The Street’s forecasts have remained relatively stable. To illustrate, three months ago, the Street was forecasting EBITDA of US$142-million in 2018 and US$164-million in 2019. The consensus earnings per share estimates were US$1.03 in 2018 and US$1.20 for the following year.
By 2022, management’s objectives are to realize revenue of US$1.5-billion, adjusted EBITDA of at least US$225-million with an adjusted EBITDA margin of at least 15 per cent.
The stock is cheap relative to historic levels, trading near trough levels.
According to Bloomberg, the shares are trading at a P/E (price-to-earnings) multiple of 11.4 times the 2019 consensus estimate, well below its three and five-year historical average P/E multiples, both at 15.2 times. On an enterprise value-to-EBITDA basis, the shares are trading at a multiple of 7.7 times the 2019 consensus estimate.
The average 12-month target price is $22.75, implying the stock has 25 per cent upside potential over the next year. Individual target prices are as follows in numerical order: $18.25 (the low on the Street is from Maggie MacDougall, the analyst at Cormark Securities), $20, two at $23, $24, $25, and $26 (the high on the Street is from Neil Linsdell, the analyst at Industrial Alliance).
Insider transaction activity
Year-to-date, there has not been any trading reported by insiders.
Most recently, between Dec. 12 and Dec. 27, chairman of the board James Pantelidis acquired a total of 11,560 shares across several accounts at an average price per share of approximately $16.01. The total cost of these purchases totaled roughly $185,000.
The stock was in a downtrend from mid-2017 until the end of 2018. However, the share price is attempting to stabilize. Year-to-date, the stock price is up 7 per cent.
Interestingly, on Fri. March 8, days ahead of the fourth-quarter earnings release, nearly 1.5-million shares traded, well above the three-month historical daily average trading volume of approximately 360,000 shares.
Looking at key resistance and support levels, the stock has a major ceiling of resistance around $20. After that, there is overhead resistance around $22. Looking at the downside, there is strong technical support around $18, close to its 50-day moving average (at $18.55) and 200-day moving average (at $18.12). Failing that, there is technical support between $16 and $16.50.
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.