On today’s TSX Breakouts report, there are 24 stocks on the positive breakouts list (stocks with positive price momentum), and 36 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a stock that surfaced on the positive breakouts list after the company reported better-than-expected earnings results on Wednesday. While stock markets have been quite volatile this week, this company’s share price has held steady.
Year-to-date, the share price is up 27 per cent and analysts anticipate the stock price may rise a further 21 per cent over the next year. The company offers investors an attractive yield of over 6 per cent with a monthly dividend that has increased over the years. The stock I am referring to is Exchange Income Corporation (EIF-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
Exchange Income Corporate has two reporting segments: aerospace & aviation as well as manufacturing. During the first quarter, 73 per cent of the company’s revenue stemmed from the aerospace and aviation business unit, while 27 per cent of revenue was from the manufacturing segment. There is seasonality in the company’s operations with the first quarter historically the weakest period.
Before the market opened on May 8, the company reported better-than-expected first quarter financial results that sent the share price rising 2 per cent on high volume with over 366,000 shares traded. EBITDA (earnings before interest, taxes, depreciation and amortization) came in at $63.8-million, up 18 per cent year-over-year and ahead of the consensus estimate of $59.5-million. Revenue from the aerospace and aviation segment increased 14 per cent year-over-year while revenue from the manufacturing segment rose 5 per cent year-over-year.
The chief executive officer Mike Pyle highlighted new contract wins in the earnings release, “The Government of Canada continued to expand its more than thirty year relationship with PAL Aerospace with the recent awarding of the maritime surveillance contract after a very competitive RFP process. EIC also successfully won the RFP process to provide general transportation services to the Government of Manitoba, primarily providing air service for the legal system in the northern region of the province. Finally, our relationship with SkyWest Inc. continued to grow as we entered into a joint venture with them to lease CRJ aircraft and/or engines to other regional airlines around the world.”
Also positive, on the earnings call Mr. Pyle provided an operational update on its new production plant, “Investment in our Quest plant is essentially complete. It was built on time and on budget. We spent much of the first quarter installing, testing and going through the learning curve, ramping up our facility. As expected, this added cost to EIC while we go through the ramp up. We are in the process of increasing staffing and training our people as production ramps. Our first customer product is expected to be shipped later this quarter and we further expect the plant to make a significant contribution to EIC's bottom line in the second half of the year.”
Management reiterated its guidance for 2019, anticipating EBITDA to increase between 10 per cent and 15 per cent, and adjusted net earnings per share is expected to rise between 8 per cent and 12 per cent.
Returning capital to shareholders
The company pays its shareholders a monthly dividend of 18.25 cents per share or $2.19 per share on a yearly basis. This translates to an annualized dividend yield of 6.1 per cent. During the trailing 12 months, the payout ratios based on adjusted net earnings and free cash flow less maintenance capital expenditures were 75 per cent and 56 per cent, respectively. The company has maintained its dividend at the current level since early 2018.
In 2018, the company repurchased 939,577 shares at a weighted average price of $32.42 as part of its NCIB (normal course issuers bid).
There are ten analysts actively covering this company, of which eight analysts have buy recommendations and two analysts have hold recommendations.
The firms providing recent research coverage on the company are as follows in alphabetical order: AltaCorp Capital, Canaccord Genuity, CIBC World Markets, Industrial Alliance Securities, Laurentian Bank Securities, National Bank Financial, Raymond James, RBC Dominion Securities, Scotiabank, and TD Securities.
Earlier this month, Scott Fromson, the analyst at CIBC World Markets, raised his target price by $1 to $39.50.
The consensus revenue estimate is $1.3-billion for 2019, rising to $1.38-billion in 2020. The Street is forecasting EBITDA of $320-million in 2019, climbing over 6 per cent to $340-million the following year. The consensus earnings per share estimate is $3.08 in 2019, and forecast to increase over 14 per cent to $3.53 in 2020.
In recent months, the consensus EBITDA estimates have increased while the consensus earnings per share forecasts have decreased. For instance, three months ago, the consensus EBITDA estimates were $307-million for 2019 and $324-million for 2020. The earnings per share estimates were $3.31 for 2019 and $3.62 for the following year. The adoption of the new accounting standard, IFRS 16, impacted earnings forecasts. As indicated in the company’s Management’s Discussion and Analysis released in Feb., “For the 2019 period, the corporation estimates that EBITDA will increase approximately $20-million and that net earnings will decrease approximately $0.05 per share as a result of the adoption of IFRS 16.”
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 6.5 times the 2020 consensus estimate, slightly above its five-year historical average of 6.3 times, but below its peak multiple of approximately 8 times during this period.
The average one-year target price is $43.73, implying the unit price has over 21 per cent upside over the next 12 months, and including the yield, this equates to a potential total return of 27 per cent. Target prices range from a low of $38 (from Derek Spronck, the analyst at RBC Capital Markets) to a high of $49 (from Steve Hansen, the analyst at Raymond James and Chris Murray, the analyst at AltaCorp Capital).
Individual target prices are as follows in numerical order: $38, $39.50, $40, $42, $45, $45.50, two at $46, and two at $49.
Insider transaction activities
Year-to-date, there has not been any trading activity in the public market reported by insiders.
Year-to-date, the share price is up a stellar 27 per cent.
Looking at key resistance and support levels, the stock is approaching initial overhead resistance around $37. There is major resistance around $40, and after that around $45, near its all-time closing high of $45.09 reached in Dec. 2016. Should the share price come under pressure, there is downside support around $34, close to its 50-day moving average (at $33.93). There is very strong technical support around $30.
This small-cap stock with a market capitalization of $1.1-billion can be thinly traded at times. The three-month historical daily average trading volume is approximately 130,000 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.