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On today’s Breakouts report, there are 49 stocks on the positive breakouts list (stocks with positive price momentum), and 10 stocks are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a security that surfaced on the positive breakouts list earlier this month, Leon’s Furniture Ltd. (LNF-T). On Dec. 2, its share price closing at an all-time high.

Home furnishing stores have experienced robust demand driven by 1) booming home sales (people are moving to the suburbs, buying houses, and shopping for new furniture and appliances) 2) people working for home (home office needs), and 3) higher renovation activity with people cocooning and beautifying their homes.

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In fact, industry players have experienced supply chain challenges due to high demand (longer times to receive products from suppliers). Stock prices of publicly-traded home furnishing retailers such as Sleep Country Canada Holdings Inc. (ZZZ-T) and BMTC Group Inc. (GBT-T) have realized healthy gains in 2020.

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

The company

Toronto-based Leon’s Furniture Limited has 305 stores across Canada under well-known banners including The Brick (its largest store count), Leon’s, Brick Outlet and The Brick Mattress Store. The company sells furniture, appliances, and electronics at its retail stores. Roughly, two-thirds of its stores (205) are corporate stores and approximately one-third (100) are franchise stores.

In terms of its national footprint, its three largest geographic regions are Ontario, where over 40 per cent of its stores are located; Alberta, where roughly 20 per cent of its stores are located; and B.C. with approximately 13 per cent of its store base.

Investment thesis highlights

  • Conservative management team.
  • Industry leader. Canada’s largest retailer of furniture, appliances and electronics.
  • Strong consumer demand.
  • Healthy balance sheet.
  • Dividend income.
  • Fair valuation. Room for multiple expansion.
  • High insider ownership. Insider ownership is significant, over 50 per cent, aligning management’s objectives with its shareholders’ objectives.
  • Potential catalyst: Quarterly earnings results. The company is expected to report its year-end results at the end of February.
  • Risks to be aware of: 1) Challenging year-over-year earnings comparisons in 2021. 2) Moderating demand at some point (there is no indication of slowing demand right now).

Quarterly financial results

On Nov. 10, LFL reported blockbuster third-quarter financial results that were well above expectations.

The company reported record revenue of $630.8-million, up 4.9 per cent year-over-year. Same-store sales increased 4.5 per cent year-over-year, and e-commerce sales jumped 235 per cent quarter-over-quarter. Adjusted earnings per share came in at 61 cents, surpassing the consensus estimate of 37 cents. At quarter-end, the company had $464-million in cash and investments on its balance sheet and $174-million in undrawn credit facilities.

The share price rallied nearly 6 per cent that day on high volume with over 185,000 share traded.

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In the earnings release, Chief Executive Officer Eddy Leon highlighted management’s core objectives that include conservatism, earnings growth, and innovation, saying: “The financial results generated this quarter highlight the power of our long-term model of financial conservatism and value creation accompanied with a relentless pursuit of exceeding our customers’ needs; ensuring that they can shop where, when and how they want. The strategic steps we took in 2018 to strengthen our e-commerce platform to enhance the customer experience and ensure scalability, continue to pay off. We have observed a meaningful improvement in engagement and sales initiation through our online channels over the past several quarters, with Q3 [third-quarter] e-commerce-initiated sales up 235 per cent quarter-over-quarter across leons.ca, thebrick.com, and furniture.ca.”

Returning capital to shareholders

Management is committed to returning capital to its shareholders.

On Nov. 10, management announced a 14-per-cent dividend hike, lifting its quarterly dividend to 16 cents per share from 14 cents per share for the dividend payable in January 2021. The higher dividend equates to an annualized yield of 3.2 per cent.

In addition, the company announced a special dividend of 30 cents per share, payable on Jan. 7, 2021 to shareholders of record as of Dec. 7, 2020.

In September, the company received approval for its share buyback program that will extend to September of 2021 and allow the company to repurchase up to approximately 4-million shares.

Analysts’ recommendations

The stock is covered by two analysts, and both have neutral recommendations.

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The two firms providing research coverage on the company are BMO Nesbitt Burns and CIBC World Markets.

Revised recommendations

Last month, both analysts raised their expectations after the company reported strong quarterly earnings results.

BMO’s Stephen MacLeod increased his target to $23 from $17, while CIBC’s Matt Bank hiked his target to $21.50 from $17.

Financial forecasts

The Street is forecasting earnings per share of $1.97 in 2020, moderating to $1.65 for 2021.

Earnings expectations have increased. For instance, last month, before the company released its quarterly financial results, the consensus earnings per share estimates were $1.62 for 2020 and $1.43 for 2021.

Valuation

According to Bloomberg, shares of LFL Group are trading at a price-to-earnings multiple of 12.2 times the 2021 consensus estimate, in-line with its historical five-year average of 12.4 times. Over this time period, the forward P/E multiple peaked at approximately 14 times.

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The average 12-month target price is $22.25, implying the unit price has nearly 11-pe- cent upside potential over the next year.

Mr. MacLeod’s $23 target suggests a 14-per-cent upside potential in the share price. Mr. Bank’s $21 target implies a 7-per-cent price return over the next year.

Insider transactions

Quarter-to-date, there hasn’t been any trading activity in the public market reported by insiders.

Chart watch

Year-to-date, the share price is up over 22 per cent. Earlier this month, on Dec. 2, the share price closed at an all-time high.

In terms of key resistance and support levels, the stock price has an initial ceiling of resistance around $21, near its record closing high of $21.19. After that, there is resistance around $22. Looking at the downside, there is initial support between $19.50 and $20, near its 50-day moving average (at $19.41). Failing that, there is strong support around $18.

This small-cap stock with a market capitalization of $1.6-billion is thinly traded. The three-month historical daily average trading volume is approximately 68,000 shares.

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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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Positive BreakoutsDec. 16 close
ALS-TAltius Minerals Corp $12.83
APR-UN-TAutomotive Properties REIT $11.36
DOO-TBRP Inc $84.94
CF-TCanaccord Genuity Group Inc $10.39
CFX-TCanfor Pulp Products Inc $7.50
CCL-B-TCCL Industries Inc $60.61
CRT-UN-TCT Real Estate Investment Trust $15.70
DIR-UN-TDream Industrial REIT $13.29
DRM-TDREAM Unlimited Corp $20.82
FR-TFirst Majestic Silver Corp $15.40
FN-TFirst National Financial Corp $41.15
FM-TFirst Quantum Minerals Ltd $21.26
GATO-TGatos Silver Inc. $11.59
GSY-Tgoeasy Ltd $99.59
GGD-TGoGold Resources Inc $1.79
GRT-UN-TGranite Real Estate Investment Trust $79.32
GTII-CNGreen Thumb Industries Inc. $28.91
GCG/A-TGuardian Capital Group Ltd $26.45
HWX-THeadwater Exploration Inc. $2.49
HIVE-XHIVE Blockchain Technologies Ltd. $2.34
IBG-TIBI Group Inc. $8.25
IIP-UN-TInterRent REIT $14.34
LIF-TLabrador Iron Ore Royalty Corp $33.45
MEQ-TMainstreet Equity Corp $79.74
MDF-TMDF Commerce Inc. $13.08
MTA-XMetalla Royalty & Streaming Limited $15.15
MI-UN-TMinto Apartment REIT $20.51
MTY-TMTY Food Group Inc. $56.40
NEO-TNeo Performance Materials Inc. $13.69
NFI-TNew Flyer Industries Inc $24.30
NVEI-TNuvei Corporation $68.58
PSI-TPason Systems Inc $8.03
PHO-TPhoton Control Inc. $1.99
PL-TPinnacle Renewable Holdings Inc. $9.50
PBL-TPollard Banknote Ltd. $28.03
PG-TPremier Gold Mines Ltd $3.00
RSI-TRogers Sugar Inc $5.71
SBB-TSabina Gold & Silver Corp $2.98
SHOP-TShopify Inc $1,474.68
SIA-TSienna Senior Living Inc $14.19
ZZZ-TSleep Country Canada $26.83
STLC-TStelco Holdings Inc. $21.30
TKO-TTaseko Mines Ltd $1.57
TCS-TTECSYS Inc. $48.75
RNW-TTransAlta Renewables Inc $18.53
TCW-TTrican Well Service Ltd $1.58
TCN-TTricon Capital Group Inc $11.76
WEF-TWestern Forest Products Inc $1.17
WPRT-TWestport Fuel Systems Inc. $5.72
Negative Breakouts
AND-TAndlauer Healthcare Group Inc. $36.90
ATP-TAtlantic Power Corp $2.54
EMP-A-TEmpire Co Ltd $34.65
JE-TJust Energy Group Inc $5.87
MRU-TMetro Inc $58.23
NDM-TNorthern Dynasty Minerals Ltd. $0.40
NVO-XNovo Resources Corp. $2.05
PYR-TPyroGenesis Canada Inc. $3.20
TRI-TThomson Reuters Corp $102.25
VGCX-TVictoria Gold Corp. $10.81

Source: Bloomberg

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