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Inside the Market Thursday’s TSX breakouts: A recent price pullback in this stock may represent a buying opportunity

On today’s TSX Breakouts report, there are 33 stocks on the positive breakouts list (stocks with positive price momentum), and 22 stocks are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a company whose share price has fallen nearly 8 per cent over the past two weeks. As a result, the stock is close to appearing on the negative breakouts list. This recent selloff may represent a buying opportunity for long-term investors. Analysts anticipate the share price will rally 20 per cent over the next year.

Discussed below is Quebecor Inc. (QBR.B-T).

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A brief outline is provided below that may serve as a springboard for further fundamental research.

The company

Quebec-based Quebecor Inc. is a telecommunications and media company. Quebecor has three key business segments: telecommunications; the media segment, with the television broadcaster, TVA Group; and its smallest segment, sports and entertainment.

Before the market opened on Aug. 9, the company reported solid second quarter financial results. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) came in at $417.1-million, in-line with the Street’s expectations of $418.3-million. Adjusted earnings per share was 45 cents, beating the consensus estimate of 40 cents. The share price rallied 5 per cent that day on high volume.

Returning capital to shareholders

The company pays its shareholders a quarterly dividend of 5.5 cents per share, or 22 cents on a yearly basis. This equates to an annualized dividend yield of 0.8 per cent.

In May, management indicated that its dividend will steadily increase stating, “The Board of Directors of Quebecor has examined the dividend policy and has set a dividend target of 30 per cent to 50 per cent of the Corporation’s annual free cash flows, to be achieved gradually by the end of a four-year period.” Since 2015, management has announced a dividend increase in May of each year.

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During the second quarter, the company repurchased 780,000 shares, and has bought back 4,909,900 shares in the first half of 2018.

Analysts’ recommendations

There are 14 analysts providing recent research coverage on this company of which 11 analysts have buy recommendations, two analysts have hold recommendations, and one analyst (from EVA Dimensions) has an “underweight” recommendation.

The firms providing recent research coverage are as follows in alphabetical order: Barclays, BMO Capital Markets, Canaccord Genuity, CIBC Capital Markets, Cormark Securities, Desjardins Securities, Echelon Wealth Partners, EVA Dimensions, Macquarie, National Bank Financial, RBC Capital Markets, Scotia Capital, TD Securities and Veritas Investment Research.

Revised recommendations

Earlier this month, several analysts revised their expectations. Of note, Bob Bek from CIBC Capital Markets lifted his target price by $3 to $32. Tim Casey, the analyst from BMO Capital Markets, raised his target price to $31 from $30. Jeffrey Fan, the analyst from Scotia Capital, tweaked his target price higher to $34 from $33. Dave McFadgen from Cormark lifted his target price by $2 to $32. Rob Goff from Echelon Wealth Partners revised his target price to $32 from $30. Aravinda Galappatthige from Canaccord Genuity raised his target price to $28 from $26.50. Desmond Lau from Veritas bumped his target price to $30.50 from $28. Barclays’ analyst Phillip Huang increased his target price to $33 from $32.

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Taking an opposing position, Anthony Campagna, the analyst from EVA Dimensions reduced his recommendation to an “underweight” from a “hold.” Maher Yaghi, the analyst from Desjardins Securities, cut his “buy” call to a “hold” recommendation but maintained his target price at $31.50.

Financial forecasts

The Street is forecasting EBITDA of $1.7-billion in 2018, rising to $1.75-billion in 2019. Earnings per share is anticipated to come in at $1.73 in 2018 and increase to $1.86 in 2019.

In recent months, financial expectations have increased. For instance, four months ago, the consensus EBITDA estimates were $1.62-billion for 2018 and $1.72-billion for 2019, and earnings per share expectations were $1.48 for 2018 and $1.66 for the following year.

Valuation

According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 7.8 times the 2019 consensus estimate, above its three-year historical average multiple of 7 times and just below its peak multiple of over 8 times.

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The consensus one-year target price is $31.43, suggesting the share price may rally 20 per cent over the next 12 months.

Target prices range from a low of $28 (from the analyst at Canaccord Genuity) to a high of $34 (from the analyst at Scotia Capital). Individual target prices provided by 13 firms are as follows in numerical order: $28, $30, $30.50, four at $31, $31.50, three at $32, $33, and $34.

Insider transaction activity

Year-to-date, there has not been any buying or selling activity in the public market reported by insiders.

Chart watch

The long-term chart is positive with the share price in a multi-year uptrend. Year-to-date, the share price has increased over 10 per cent. While this uptrend remains intact, in recent days, the stock price has come under pressure, falling nearly 8 per cent over the past two weeks.

The relative strength index (RSI) is at 36, indicating that the stock is approaching oversold levels. Generally, an RSI reading at or below 30 reflects an oversold condition.

In terms of key resistance and support levels, there is major overhead resistance between $29 and $30. Looking at the downside, there is strong support around $25, near its 200-day moving average (at $25.06).

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.

Positive Breakouts Aug. 29 close
ARE-T Aecon Group Inc $17.48
AOI-T Africa Oil Corp $1.26
AFN-T Ag Growth International Inc $62.42
HOT.UN-T American Hotel Income Properties REIT LP $9.27
APH-T Aphria Inc. $16.31
AI-T Atrium Mortgage Investment Corp. $13.80
BLDP-T Ballard Power Systems Inc $4.42
BMO-T Bank of Montreal $107.27
BTB.UN-T BTB Real Estate Investment Trust $4.93
CHR-T Chorus Aviation Inc $8.00
CM-T CIBC $122.85
DNA-T Dalradian Resources Inc. $1.47
EFN-T Element Fleet Management Corp. $7.20
XTC-T Exco Technologies Ltd $10.02
EXF-T EXFO Inc $5.45
GSY-T goeasy Ltd $53.13
MEQ-T Mainstreet Equity Corp $48.39
MTY-T MTY Food Group Inc. $60.20
OGI-T Organigram Holdings Inc. $6.60
RFP-T Resolute Forest Products Inc. $17.75
REI.UN-T RioCan Real Estate Investment Trust $25.39
RY-T Royal Bank of Canada $104.49
SIS-T Savaria Corp. $18.28
SMU.UN-T Summit Industrial Income REIT $9.01
FIRE-T Supreme Cannabis Co Inc. $2.25
TFII-T TFI International Inc. $48.26
TRI-T Thomson Reuters Corp $58.06
X-T TMX Group Ltd $89.52
TD-T Toronto-Dominion Bank $79.31
TOT-T Total Energy Services Inc $12.50
U-T Uranium Participation Corp. $4.80
VMD-T Viemed Healthcare Inc. $6.16
WPRT-T Westport Innovations Inc $4.51
Negative Breakouts
BOS-T AirBoss of America Corp $12.02
ALA-T AltaGas Ltd $24.83
AKG-T Asanko Gold Inc $1.08
CBL-T Callidus Capital Corp $2.25
CG-T Centerra Gold Inc $5.49
CGG-T China Gold International Resources Corp. $1.79
CUF.UN-T Cominar Real Estate Investment Trust $12.14
CJR.B-T Corus Entertainment Inc $3.84
DEE-T Delphi Energy Corp $0.73
DRM-T DREAM Unlimited Corp $8.01
FNV-T Franco-Nevada Corp $84.96
IBG-T IBI Group Inc. $5.04
MRU-T Metro Inc $40.91
MNW-T Mitel Networks Corp $14.15
NCU-T Nevada Copper Corp $0.45
NVO-T Novo Resources Corp. $3.75
QSR-T Restaurant Brands International Inc $74.95
SUM-T Solium Capital Inc $11.00
STEP-T STEP Energy Services Ltd. $7.43
SWY-T Stornoway Diamond Corp $0.35
THO-T Tahoe Resources Inc $4.68
TC-T Tucows Inc. $70.72

Source: Bloomberg

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