On today’s Breakouts report, there are 69 stocks on the positive breakouts list (stocks with positive price momentum), and 30 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a dividend stock that is 5 per cent away from appearing on the positive breakouts list - Intertape Polymer Group Inc. (ITP-T).
On Friday, the company will be releasing its third-quarter earnings results before the market opens. For the past four consecutive quarters, the company has reported better-than-expected earnings with its share price rallying between 3 per cent and 20 per cent the day its quarterly results were released.
The stock has a unanimous buy recommendation from nine analysts. The average target price implies the share price has 35-per-cent upside potential over the next year.
A brief outline on the stock is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
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.
Intertape is the second largest tape manufacturer in North America (3M Inc. holds the No. 1 position). The company produces water-activated tapes, so when Amazon leaves a package at your door, the tape will stay secure on the box. In addition, companies, such as Amazon, are able to package their delivery boxes with printed tapes promoting events, such as Amazon’s Prime Day. In 2020, tapes represented 59 per cent of the company’s total revenue.
Intertape has facilities worldwide with 21 located in North America, one in Portugal, one in India and one in China.
According to Bloomberg, the Caisse de dépôt et placement du Québec, considered a long-term institutional investor, owns approximately 4 per cent of the shares outstanding.
- Industry leadership.
- Solid execution. Delivering solid revenue and earnings growth.
- Growth in e-commerce. On the second-quarter earnings call, management indicated they anticipate its e-commerce business segment (water-activated carton sealing tape, protective packaging, carton dispensing machines) to grow in the low to mid-teens. In terms of Intertape’s end markets, e-commerce represented approximately 27 per cent of the company’s 2020 total revenue.
- Healthy balance sheet (net debt-to-trailing EBITDA of 2.4 times, which is within management’s target of between 2 and 2.5 times).
- Reasonable valuation.
- A slew of earnings beats. Four consecutive quarters of earnings beats with its share price rallying between 3 per cent and 20 per cent on the day its quarterly financial results were released.
- Potential key risks to consider: 1) decelerating year-over-year growth due to tougher year-over-year comparisons (benefited from the e-commerce explosion during the height of the pandemic), which may limit multiple expansion; 2) higher input costs and supply chain constraints persisting; and 3) the stock may continue to trade in a channel between $26 and $32.
Recent earnings results
Before the market opened on Aug. 11, the company reported an earnings beat, which sent the share price soaring 10 per cent that day.
Revenue came in at US$377-million, above the consensus estimate of US$351-million, and up 41 per cent year-over-year. Gross margin was 23.7 per cent, up from 21.3 per cent reported during the same period last year. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was US$65.7-million, beating the Street’s expectations of US$59.1-million and up 60 per cent year-over-year. The adjusted EBITDA margin was 17.4 per cent in the second-quarter. Adjusted earnings per share came in at 56 US cents, topping the consensus estimate of 42 US cents.
Looking ahead, on the earnings call, president and chief executive officer Greg Yull remarked on the company’s solid start to the third quarter, “The demand trend in the third quarter remains strong at this stage of August. We typically have approximately three to five weeks of forward visibility, and our core or current order book is as strong as it’s ever been.”
Mr. Yull indicated that higher raw material costs have yet to ease. Resin represents approximately 30 per cent of raw material inputs. He believes higher prices will remain a challenge for the balance of the year. However, on the second-quarter earnings call, he noted that the company was able to increase more than 30 prices across its product line since the start of the year.
The company will be releasing its third-quarter financial results before the market opens on Fri. Nov. 12, and will be hosting an earnings call that day at 10 a.m. ET. The consensus revenue, EBITDA, and earnings per share estimates are US$379-million, US$64-million, and 48 US cents, respectively.
In August the company announced an 8-per-cent dividend increase, raising its quarterly dividend to 17 US cents per share, or 68 US cents per share yearly. This equates to a current annualized yield of 2.9 per cent.
The company has maintained its dividend throughout the coronavirus pandemic.
This small-cap stock with a market capitalization of $1.78-billion has a unanimous buy recommendation from nine analysts.
The firms providing research coverage on the company are: BMO Nesbitt Burns, CIBC World Markets, Cormark Securities, Industrial Alliance Securities, National Bank Financial, PI Financial, RBC Dominion Securities, Scotia Capital and TD Securities.
Target prices have held steady ahead of the company’s third-quarter earnings release.
Since the beginning of the fourth quarter, only one analyst has revised his expectations. RBC’s Walter Spracklin tweaked his target price to $37 (the low on the Street) from $36.
According to Bloomberg, the consensus revenue estimates are US$1.48-billion in 2021, up 22 per cent from US$1.213-billion reported in 2020, and anticipated to climb 5 per cent to US$1.56-billion in 2022. The Street is expecting adjusted EBITDA to come in at US$255-million in 2021, up from US$211-million in 2020, and rising to US$274-million in 2022. The consensus adjusted earnings per share estimates are US$2.01 in 2021 and US$2.10 in 2022.
Management’s 2021 revenue guidance is between US$1.425-billion and US$1.5-billion, up from its earlier guidance. In March, management targeted 2021 revenue to be between US$1.3-million and US$1.4-million. However, management trimmed its free cash flow outlook, now targeting free cash flow to be between US$70-million and US$80-million, resulting from higher working capital needs due to strong demand and rising input costs and supply chain constraints.
The Street’s earnings forecasts have been rising. Three months ago, the Street was forecasting revenue of US$1.42-billion in 2021 and US$1.48-billion in 2022. The consensus adjusted EBITDA estimates were US$245-million in 2021 and US$261-million in 2022. The Street was forecasting adjusted earnings per share to come in at US$1.84 in 2021 and US$2.01 the following year.
The stock trades at a reasonable valuation.
According to Bloomberg, the shares are trading at a P/E (price-to-earnings) multiple of 11.5 times the 2022 consensus estimate, just below its five-year historical average P/E multiple of 12.1 times. Over the past five years, the stock has peaked at a forward P/E multiple of just over 16 times. On an enterprise value-to-EBITDA basis, the shares are trading at a multiple of 7.4 times the 2022 consensus estimate, just shy of its five-year historical average multiple of 7.6 times.
The average 12-month target price is $40.44, implying the share price has 35-per-cent upside potential over the next year. Individual target prices are: $37 (from RBC’S Walter Spracklin), $39, four at $40, $41, $42, and $45 (from Cormark’s David Ocampo).
Insider transaction activity
Quarter-to-date, there has not been any trading activity in the public market reported by insiders.
Year-to-date, the share price is up 24 per cent, making it the eighth best performing stock in the S&P/TSX Materials Sector Index in 2021.
Over the past eight months, the share price has been consolidating, or trading sideways, in a trading range between $26 and $32.
If the share price breaks above the $32 level, the next major ceiling of resistance is around $40. Looking at the downside, there is strong technical support around $28, close to its 50-day moving average (at $28.88) as well as its 200-day moving average (at $28.17). Failing that, there is technical support between $25 and $26.
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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