On today’s TSX Breakouts report, there are 19 stocks on the positive breakouts list (stocks with positive price momentum), and 53 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a stock that appeared on the negative breakouts list last month when the share price was down nearly 13 per cent year-to-date. However, since then the share price has rebounded 9 per cent and additional upside may result if the company reports solid quarterly results later this week. Last quarter, weather negatively impacted the company’s financial results. However, earnings may rebound given warm summer weather conditions.
The stock highlighted today is Dollarama Inc. (DOL-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
Montreal-based Dollarama has approximately 1,170 stores across the country, selling a wide range of products such as seasonal items, food, school supplies, toys, pet supplies, clothing, cosmetics and household items, all at a cost of $4 or less. There is seasonality in the company’s business with the lowest earnings realized in the first quarter of its fiscal year (the company’s fiscal year-end is at the end of January) and the highest earnings reported during the company’s fourth quarter of its fiscal year.
Dollarama is expected to report its second-quarter fiscal 2019 financial results before the market opens on Thursday Sept. 13. The consensus earnings per share estimate is 44 cents. Revenue is forecast to come in at $889-million and EBITDA is anticipated to be $228-million.
According to Bloomberg, the company has reported better-than-expected earnings per share for eight out of the past nine quarters. The one quarter when financial results were shy of expectations was the most recent reported quarter. In June, the company missed earnings expectations, reporting earnings per share of 92 cents, which was below the consensus estimate of 93 cents per share.
On the earnings call, chief executive officer Neil Rossy attributed the softness in the quarterly results to cold weather conditions. He stated, “This morning, we reported our financial results for the first quarter of fiscal 2019. Despite lighter than usual summer sales due to poor weather, we delivered another solid quarterly performance. Our results reflect continued sales growth, a solid gross margin and the positive impact of our ongoing cost control and productivity-improvement initiatives. Looking first at Q1 (first-quarter) sales, which increased 7.3 per cent and same-store sales, which stood at 2.6 per cent over and above a 4.6 per cent growth in the previous year. Historically, sales of summer seasonal products have represented the most significant seasonal sales in the first quarter, with the majority occurring in April. Due to poor weather in April of this year, it was unseasonably cold in many Canadian regions. We experienced a delay in customer demand for our summer seasonal product assortment. Excluding summer seasonal product sales, same store sales in the first quarter for our year-round assortment was in line with our assumption of 4 per cent to 5 per cent same-store sales growth. By the end of May, sales of our summer seasonal products were catching up with the lag in sales in the first quarter. The key takeaway here is that we believe this is a temporary and weather-related event and our underlying same-store sales assumptions for the full year remain unchanged.”
Management’s core objective is growth. During the last quarter, the company opened 10 net new stores, and remains on track to open between 60 and 70 net new stores in fiscal 2019. Management is targeting having 1,700 stores nationwide by 2027, up from 1,170 currently. Furthermore, expansion of its distribution centre continues to advance with the construction phase of a 50 per cent increase in workspace anticipated to be completed by the end of fiscal 2019.
According to Bloomberg, Caisse de dépôt et placement du Québec (CDPQ) has an ownership position of more than 5 per cent of the shares outstanding.
Returning capital to shareholders
The company pays its shareholders a quarterly dividend of 4 cents per share, or 16 cents per share on a yearly basis. This equates to a small annualized dividend yield of 0.3 per cent.
The company declared its first dividend in 2011, and has announced seven dividend increases since its inception, one in each calendar year beginning in 2012. The most recent dividend hike was announced in March.
The company has been actively repurchasing shares as part of its share buyback program. In the first-quarter of fiscal 2019, the company repurchased 94,500 shares at a weighted average price per share of $153.89.
According to Bloomberg, 16 analysts have issued recommendations after the company reported its first-quarter fiscal 2019 financial results, of which 13 analysts have buy recommendations and three analysts have hold recommendations..
Firms providing recommendations on this consumer stock are as follows in alphabetical order: Accountability Research, Barclays, BMO Capital Markets, Canaccord Genuity, CIBC Capital Markets, Desjardins Securities, EVA Dimensions, Industrial Alliance Securities, Macquarie, National Bank Financial, Raymond James, RBC Capital Markets, Scotia Capital, TD Securities, Veritas Investment Research and Wells Fargo Securities.
Earlier this month, Neil Linsdell, the analyst from Industrial Alliance Securities, upgraded his recommendation to a ‘buy’ call from a ‘hold’ recommendation but he maintained his target price at $54.50.
The consensus earnings per share estimates are $1.74 in fiscal 2019, increasing 23 per cent to $1.97 in fiscal 2020.
Earnings expectations have been stable. Earnings per share forecasts for fiscal 2019 and fiscal 2020 are unchanged from three months ago.
The stock is trading at a price-to-earnings multiple of 25 times the fiscal 2020 consensus estimate, which is in-line with its three-year historical average. The stock has traded at forward P/E multiple as high as 32 times, suggesting there is room for multiple expansion.
The one-year consensus target price is $56.32, suggesting there is nearly 13 per cent upside in the share price over the next 12 months. Target prices range from a low of $52 (from Jim Durran, the analyst at Barclays) to a high of $61 (from Peter Sklar, the analyst at BMO Capital Markets). Individual target prices provided by 15 firms are as follows in numerical order: $52, $53, $54, $54.50, $55, four at $56, $56.33, $58, three at $59, and $61.
Insider transaction activity
Year-to-date, five insiders have reported transactions in the public market – all sales.
Most recently, on June 20, Nicolas Hien, Senior Vice-President – Project Management and Systems, exercised his options and sold the corresponding number of shares (36,750) at an average price per share of $52.27, eliminating his position.
So far 2018 has been a lacklustre year for this stock with the share price down 4 per cent, which is in-line with the S&P/TSX composite consumer discretionary sector’s negative return. The share price has been in a downtrend since January 2018 with its share price making lower highs and lower lows.
Looking at key resistance and support levels, the share price has major overhead resistance around $56.50, close to its record closing high of $56.63 set back in June 2018. Looking at the downside, there is strong technical support around $46 and failing that around $40.
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.