On today’s TSX Breakouts report, there are 37 stocks on the positive breakouts list (stocks with positive price momentum), and 69 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a small-cap industrial stock that is on the positive breakouts list with the share price up 48 per cent year-to-date. This stock has been resilient during periods of market weakness. For instance, during the fourth quarter, while the S&P/TSX composite index was in a steep decline, this stock’s share price was relatively unchanged. The security I am referring to is GDI Integrated Facility Services Inc. (GDI-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Québec-based, GDI is a leading provider of janitorial services in North America. Management’s corporate objective is a combination of acquisition and organic (increase customer base and increase services provided to existing customers) growth.
On May 9, the company reported first-quarter financial results that were relatively in-line with expectations. The company reported revenue of $305-million, up 21.4 per cent year-over year, in-line with the consensus estimate of $302-million. The increase in revenue was attributed to both organic (internal growth of 7.8 per cent) and acquisition growth representing much of the 13 per cent balance. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) totalled $16-million, in-line with the consensus estimate of $16-million. The share price advanced 2 per cent on May 10.
On the fourth-quarter earnings call held in March, the president and chief executive officer Claude Bigras highlighted management’s goal of reaching $2-billion in revenue within three to five years. To put this in perspective, the Street is anticipating the company will report $1.26-billion in revenue in 2019 and $1.32-billion the following year. Acquisition growth remains a key objective in order for the company to reach this target. Year-to-date, GDI has announced three acquisitions and last year, the company completed six acquisitions.
Dividend policy
Management is focused on growth and currently does not pay its shareholders a dividend.
Analysts’ recommendations
There are five analysts actively covering this small-cap stock with a market capitalization of $582-million, of which four analysts have buy recommendations and one analyst (Scott Fromson from CIBC Capital Markets) has a ‘neutral’ recommendation.
The firms providing recent research coverage on the company are as follows in alphabetical order: CIBC Capital Markets, Desjardins Securities, Industrial Alliance Securities, National Bank Financial and TD Securities.
Revised recommendations
Earlier this month, five analysts revised their target prices – all higher.
Frederic Tremblay, the analyst at Desjardins Securities, boosted his target price to $31 from $26.50. Neil Linsdell, the analyst at Industrial Alliance Securities, lifted his target price to $29 from $26. Scott Fromson, the analyst at CIBC Capital Markets, raised his target price by $4 to $28 (the low on the Street). Damir Gunja from TD Securities lifted his target price to $32 from $29. Zachary Evershed, the analyst at National Bank Financial, took his target price up to $30.50 from $26.
Financial forecasts
The Street is forecasting EBITDA of $75.3-million in 2019, rising to $80.7-million in 2020. The consensus earnings per share estimate is 91 cents in 2019, and expected to break above the $1 level (consensus estimate is $1.28) in 2020.
In recent months, earnings estimates have climbed higher. To illustrate, three months ago, the Street was forecasting EBITDA of $63.9-million for 2019 and $67.6-million for 2020.
Valuation
According to Bloomberg, shares of GDI are trading at an enterprise value-to-EBITDA multiple of 10.2 times the 2019 consensus estimate, slightly above its three-year historical average of 9.5 times but below its peak multiple of approximately 12 times during this time period. The stock is trading at an EV/EBITDA multiple of 9.5 times the 2020 consensus estimate.
The consensus target price is $30.10, suggesting there is roughly 10 per cent upside potential over the next 12 months. Individual target prices are as follows in numerical order: $28 (the low on the Street is from Scott Fromson, the analyst at CIBC Capital Markets), $29, $30.50, $31 and $32 (the high on the Street is from Damir Gunja, the analyst at TD Securities).
Insider transaction activities
Year-to-date, there has not been any trading activity in the public market reported by insiders.
Chart watch
The share price has been resilient while the stock market has been under pressure. Year-to-date, the share price of this small-cap industrial stock has been a stellar performing, rising over 48 per cent.
Looking at key overhead resistance and downside support levels, there is initial overhead resistance around $30. Looking at the downside, there is technical support around $25, near its 50-day moving average (at $24.96). Failing that, there is support around $20, close to its 200-day moving average (at $20.54).
This small-cap stock is thinly traded, which can increase price volatility. The three-month historical daily average trading volume is approximately 10,000 shares.
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.
Jennifer Dowty