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analysis

On today’s Breakouts report, there are 47 stocks on the positive breakouts list (stocks with positive price momentum), and 21 stocks are on the negative breakouts list (stocks with negative price momentum).

Featured today is a dividend stock that just surfaced on the positive breakouts list – Mullen Group Ltd. (MTL-T). Year-to-date, the share price is up 27 per cent and the average 12-month target price suggests the stock has an additional 20-per-cent upside potential.

The stock has near-term tailwinds (positive drivers) with rebounding economic activity boosting freight transportation demand. In addition, energy prices are rising to multi-year highs benefitting the company’s Specialized & Industrial Services segment.

A brief outline on Mullen Group is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.

The company

Alberta-based Mullen Group has three core reporting segments: 1) Less-Than-Truckload (LTL), which represented just under 41 per cent of total revenue in the second quarter; 2) Logistics and Warehousing (39 per cent); and 3) Specialized & Industrial Services that provides services to the energy sector (21 per cent).

Investment thesis

  • Seasoned management team with Murray Mullen at the helm.
  • Industry leader. Mullen Group is one of the nation’s largest logistics providers.
  • Positive industry conditions. Rebounding economic conditions are driving demand for goods and leading to higher freight transportation volumes and pricing.
  • Near-term objectives: integration and realizing synergies from the five recently completed acquisitions, increasing margins, cost management, and smaller “tuck-in’ acquisition opportunities.
  • Longer-term objective: expanding in the U.S. market.
  • Rebounding energy prices increasing drilling activity.
  • Solid balance sheet. Net debt-to-EBITDA ratio of approximately 2.5 times.
  • Attractive dividend yield. Generates strong free cash flow.
  • Repurchasing shares. Providing some downside support.
  • Reasonable valuation. Room for multiple expansion.
  • Potential risks to consider: 1) rising costs including fuel, wages, maintenance, tires, and parts; and 2) shortage of skilled labour (truck drivers).

Quarterly earnings results

After the market closed on July 21, the company reported better-than-expected second-quarter financial results. Total revenue was $312.5-million, ahead of the Street’s forecast of $308.9-million. Adjusted EBITDA (earnings before, interest, depreciation and amortization) was $52.6-million, just above the consensus estimate of $51.7-million. Adjusted earnings per share came in at 21 cents, beating the consensus estimate of 15 cents. However, the major news was that the company completed four acquisitions during the quarter and one acquisition was completed after quarter-end, boosting the company’s top-line (revenue) growth. The share price rallied 5 per cent the following day on high volume with over 1.1-million shares traded. To put this in perspective, the three-month historical daily average trading volume is approximately 385,000 shares.

On the earnings call, chairman, president and chief executive officer Murray Mullen provided a bullish outlook for the company, “So in summary, it is reasonable to expect some very solid results from our company through the balance of the year. Acquisitions are going to supercharge our revenue growth, relative to last year folks - that’s why we did them. The consumer portion of the economy is on solid footing. E-commerce and direct-to-consumer drive, continue to drive demand. Our Less-Than-Truckload and Logistics & Warehousing segments both will benefit from a strong economy, robust consumer demand, and changes in the supply chain. There’s growing optimism even in the oil and natural gas service sector. So all in all, I have a pretty positive outlook of the segments that we serve.”

After the market closes on Oct. 27, the company will be releasing its third-quarter earnings results. The consensus revenue and EBITDA estimates are $399-million and $66.5-million, respectively. Management will be hosting an earnings call on Oct. 28 at 11 a.m. ET.

Returning capital to its shareholders

The company pays its shareholders a monthly dividend of 4 cents per share, or 48 cents per share yearly, equating to a current annualized yield of 3.5 per cent.

During the second quarter, 1,430,720 shares were repurchased as part of the company’s share buyback program at an average price per share of $12.81.

Analysts’ recommendations

This small-cap stock with a market capitalization of $1.3-billion is covered by 11 analysts, of which eight analysts have buy recommendations and three analysts have neutral recommendations.

The firms providing research coverage on the company are: BMO Nesbitt Burns, CIBC World Markets, Cormark Securities, iA Capital Markets, ISS-EVA, National Bank Financial, Peters & Co., Raymond James, RBC Dominion Securities, Scotia Capital and TD Securities.

Revised recommendations

Month-to-date. two analysts have made minor revisions to their target prices.

  • National Bank’s Michael Storry-Robertson increased his target price to $16.50 from $15.50.
  • TD Securities’ Aaron MacNeil tweaked his target price to $19 (the high on the Street) from $18.50.

Financial forecasts

The Street anticipates Mullen Group will report revenue of $1.41-billion in 2021, rising to $1.66-billion in 2022. The consensus EBITDA estimates are $233-million in 2021 and $267-million in 2022. The consensus earnings per share estimates are 78 cents in 2021 and forecast to rise 22 per cent to 95 cents in 2022.

Earnings forecast have been rising. To illustrate, four months ago, the Street was forecasting EBITDA of $224-million in 2021 and $248-million in 2022. The consensus earnings per share estimates were 69 cents in 2021 and 83 cents in 2022.

Valuation

According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 7.6 times, below its five-year historical average of 7.9 times.

The average 12-month target price is $16.60, implying the share price has 20 per cent upside potential over the next year. Individual target prices provided by 10 analysts are: $14.50 (from Raymond James’ Andrew Bradford), $15, $15.50, $16, $16.50, two at $17, $17.50, $18, and $19 (from TD’s Aaron MacNeil).

Insider transaction activity

Looking back to the beginning of May, there has not been any trading activity in the public market reported by insiders.

Chart watch

Year-to-date, the share price is up 27 per cent.

The stock price has been building a base, trading in a horizontal channel. Since mid-March, the share price has been trading sideways between $12 and $14. If the share price can break and hold above $14, the next resistance level is around $17. After that, there is major overhead resistance around $20.

Looking at the downside, the share price has strong technical support around $12, near its 200-day moving average (at $12.46). Failing that, there is support around $10.

POSITIVE BREAKOUTSOct. 13 close
AOI-TAfrica Oil Corp $2.10
ARR-TAltius Renewable Royalties Corp. $10.32
ADW-A-TAndrew Peller Ltd $9.10
BEI-UN-TBoardwalk Real Estate Investment Trust $50.28
CCO-TCameco Corp $31.89
CNQ-TCanadian Natural Resources Ltd $50.02
CFP-TCanfor Corp $29.53
CFX-TCanfor Pulp Products Inc $7.57
CDAY-TCeridian HCM Holding Inc. $152.85
CEU-TCES Energy Solutions Corp. $2.12
CHE-UN-TChemtrade Logistics Income Fund $7.89
DXT-TDexterra Group Inc. $8.87
D-UN-TDream Office Real Estate Investment Trust $24.12
DRM-TDREAM Unlimited Corp $29.61
ENB-TEnbridge Inc $52.37
EQX-TEquinox Gold Corp. $10.05
FM-TFirst Quantum Minerals Ltd $27.05
GGD-TGoGold Resources Inc $3.25
GSC-TGolden Star Resources Ltd. $3.51
GRT-UN-TGranite Real Estate Investment Trust $95.25
HUT-THut 8 Mining Corp. $13.44
IPCO-TInternational Petroleum Corp. of Sweden $7.24
KRR-TKarora Resources Inc. $3.99
KMP-UN-TKillam Apartment REIT $22.34
KL-TKirkland Lake Gold Inc $56.84
LAC-TLithium Americas Corp $31.88
LA-XLos Andes Copper Ltd. $8.49
MTL-TMullen Group Ltd $13.81
NA-TNational Bank of Canada $100.63
NXE-TNexGen Energy Ltd. $7.61
NOU-XNouveau Monde Graphite Inc. $9.32
OVV-TOvintiv Inc. $47.92
PPL-TPembina Pipeline Corp $41.91
PSH-TPetroshale Inc. $0.41
PVG-TPretium Resources Inc $13.66
RCK-XRock Tech Lithium Inc. $6.16
SRU-UN-TSmartCentres Real Estate Investment Trust $30.85
SMU-UN-TSummit Industrial Income REIT $22.55
TKO-TTaseko Mines Ltd $2.70
TRP-TTC Energy Corp. $64.18
TECK-B-TTeck Resources Ltd $35.00
TIH-TToromont Industries Ltd $109.64
TOT-TTotal Energy Services Inc $5.27
TXP-TTouchstone Exploration Inc. $2.09
TCW-TTrican Well Service Ltd $3.28
TCN-TTricon Residential Inc $17.10
WEF-TWestern Forest Products Inc $2.36
NEGATIVE BREAKOUTS
AMY-XAmerican Manganese Inc. $0.84
BRMI-TBoat Rocker Media Inc. $6.99
CF-TCanaccord Genuity Group Inc $12.98
CVG-TClairvest Group Inc. $56.50
CCA-TCogeco Communications Inc $108.31
CGO-TCogeco Inc $85.74
CURA-CNCuraleaf Holdings Inc. $13.64
DND-TDye & Durham Ltd. $36.10
GTII-CNGreen Thumb Industries Inc. $31.00
ISV-TInformation Services Corp. $26.50
KBL-TK-Bro Linen Inc. $38.00
LGT-B-TLogistec Corp $41.70
PLTH-CNPlanet 13 Holdings Inc. $5.37
PRMW-TPrimo Water Corp. $19.92
RECP-TRecipe Unlimited Corp. $18.25
QSR-TRestaurant Brands International Inc $75.92
TER-CNTerrAscend Corp. $7.70
TFPM-TTriple Flag Precious Metals Corp. $11.00
VOYG-TVoyager Digital Ltd. $11.51
WPK-TWinpak Ltd. $39.48
Y-TYellow Pages Ltd $13.34

Source: Bloomberg and The Globe and Mail

This report is not an investment recommendation. 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.

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