On today’s TSX Breakouts report, there are 47 stocks on the positive breakouts list (stocks with positive price momentum), and 21 securities are on the negative breakouts list (stocks with negative price momentum).
The blazing wildfires in British Columbia have sent lumber stocks soaring in recent days. Discussed today is a lumber producer headquartered in B.C. whose share price has rallied 17 per cent over the past 10 trading days. The stock may appear on the positive breakouts list in the future if analysts’ expectations are correct. Analysts anticipate this company’s stock price may rise 33 per cent over the next year. Earlier this month, the analyst at TD Securities upgraded the stock to an “action list buy” recommendation, while the analyst from Raymond James added the stock to the firm’s “Analyst Current Favourites” (ACF) list. The security highlighted today is Interfor Corporation (IFP-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
With its headquarters located in Vancouver, B.C., Interfor is one of the largest North American lumber producers and has significant U.S. exposure. Consequently, the U.S. housing market is a key driver for Interfor’s earnings. In terms of geographical sales breakdown, in 2017, 69 per cent of the company’s sales came from the U.S., 13 per cent of its sales stemmed from Canada, 7 per cent of sales were from Japan, 6 per cent of sales were from China/Taiwan with the remaining 5 per cent coming from other regions.
After the market closed on Aug. 2, the company reported better-than-expected second quarter financial results. Reported adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $123.8-million, up from $77.4-million reported during the same period last year. The company’s balance sheet continues to strengthen with net debt-to-invested capital of 3.4 per cent. Net debt declined by $93-million during the quarter to $34.3-million. The share price inched higher the following trading day, advancing by two cents.
On the earnings call, president and chief executive officer Duncan Davies remarked on the company’s solid earnings results, stating: “Our results in the second quarter were positively impacted by higher lumber sales realizations, which before duties were $65 per thousand board feet higher than the prior quarter, reflecting the strength of lumber prices, which set numerous records before peaking at the end of May; and the decline of the value of the Canadian dollar, which was off 2 per cent quarter-over-quarter. Production and sales volumes were also stronger in the second quarter.”
The CEO provided a positive outlook for the company driven by strong industry fundamentals. “There will continue to be volatility in product pricing. We believe the market will continue to grow. The pricing will continue to reflect demand and supply balances, which we believe are tight, and well performing, well-run companies with quality assets will continue to deliver above-average returns.”
Recently, leading U.S. homebuilders such as D.R. Horton Inc. (DHI-NYSE) and Lennar Corp. (LEN-NYSE) have expressed positive outlooks for the homebuilding industry. On an earnings call that took place on July 26, D.R. Horton guided to revenue growth of between 10 per cent and 15 per cent for fiscal 2019. On June 26, Lennar’s executive chairman Stuart Miller stated in the company’s earnings release: “Concerns about rising interest rates and construction costs have been offset by low unemployment and increasing wages, combined with short supply based on years of underproduction of new homes. Demand remained strong as we continued to see pricing power support margins while affordability remained consistent.”
The company does not pay its shareholders a dividend.
This small-cap stock with a market capitalization of $1.6-billion is actively covered by six analysts, of which five analysts have buy recommendations and one analyst (from BMO Capital Markets) has a ‘market perform’ recommendation on the stock.
The six firms providing recent research coverage on the company are as follows in alphabetical order: BMO Capital Markets, CIBC Capital Markets, Raymond James, RBC Capital Markets, Scotia Capital and TD Securities.
Earlier this month, Sean Steuart, the analyst from TD Securities, upgraded the stock to an ‘action list buy’ recommendation but maintained his target price at $31. Daryl Swetlishoff, the analyst from Raymond James, maintained his ‘strong buy’ recommendation and target price of $35, while adding the stock to the firm’s “Analyst Current Favorites” (ACF) list, comprised of analysts’ top stock picks.
In July, Paul Quinn from RBC Capital Markets boosted his target price to $33 from $30. In addition, Hamir Patel of CIBC Capital Markets lifted his target price to $33 from $32.
The Street is forecasting EBITDA of $372-million for 2018 and $358-million for 2019.
Earnings forecasts have increased in recent months, particularly for this year. To illustrate, three months ago, the consensus EBITDA estimates were $325-million for 2018 and $333-million for 2019.
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 4.7 times the 2019 earnings forecast. This is at the low end of the historical trading range. Over the past three years, the stock has traded at a forward multiple ranging between 4 times and approximately 7.5 times with a three-year historical average of 5.8 times.
The average one-year target price is $31.08, implying the share price may appreciate 33 per cent over the next 12 months. Individual target prices are as follows in numerical order: $24 (the low on the Street is from the analyst at BMO Capital Markets), $30.50, $31, two at $33 and $35 (the high on the Street is from the analyst at Raymond James).
Insider transaction activity
Most recently, on August 8, Bart Bender, senior vice-president of sales and marketing, purchased 3,200 shares at a cost per share of $20.45 in his RSP, increasing his account balance to 18,101 shares.
Prior to that, on June 14, Mr. Bender acquired 2,900 shares at a price per share of $24.0417.
So far this year, the share price has been quite volatile along with the price of lumber. Interfor’s share price climbed 28 per cent year-to-date to $27.10 as at June 7, but subsequently plunged 27 per cent with its share price falling below $20 by the beginning of this month. Over the past 10 trading session, the share price has rallied 17 per cent, closing at $23.29 on Aug. 17. Year-to-date, the share price is now up 10 per cent.
Looking at key resistance and support levels, the stock has major overhead resistance around $23.50, near its 50-day moving average (at $23.47) and its 200-day moving average (at $23.38). After that, there is a ceiling of resistance between $25 and $25.50, and then at $27. Looking at the downside, the stock has strong technical support around $20.
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.