On today’s TSX Breakouts report, there are 55 stocks on the positive breakouts list (stocks with positive price momentum), and 28 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a company that is on the positive breakouts list. The stock provides both earnings growth and income with its attractive 5 per cent dividend yield.
Year-to-date, the share price is up 57 per cent, hovering just below its all-time closing high. Furthermore, the share price has rallied 10 per cent over the past four trading days. Given this parabolic move, I wouldn’t chase the stock, but rather wait for pullback to provide investors with a better buying opportunity.
With nine buy recommendations, this is a stock to put on your radar screen. The stock I am referring to is Exchange Income Corp. (EIF-T).
A brief outline is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
Winnipeg-based EIC has two main reporting segments: aerospace & aviation as well as manufacturing.
The aerospace & aviation business segment provides airline, charter flights, and emergency medical air transport services. The manufacturing segment provides manufactured goods and services across diversified end markets.
For instance, the company manufactures window wall systems for high-rise residential buildings, manufactures components used in the aerospace and defence sector, manufactures pressure washing and steam systems, and produces tanks used for transporting oil, gas, and water.
During the first nine months of 2019, 74 per cent of the company’s revenue stemmed from the aerospace and aviation business unit, while 26 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.
After the market opened on Nov. 7, the company reported solid third-quarter financial results that sent the share price rising 4 per cent the following trading day on unusually high volume with over 500,000 shares traded (the three-month historical daily average trading volume is approximately 160,000 shares).
Revenue increased 15 per cent to $355-million, ahead of the Street’s expectations of $334-milllion. EBITDA (earnings before interest, taxes, depreciation and amortization) came in at $89-million, up 12 per cent year-over-year and relatively in-line with the consensus estimate of $90-million. However, there was a one-time bad debt write-off of $6-million due to a customer, Regional One, filing for bankruptcy. Excluding this write-off, EBITDA would have been $95-million.
Chief executive officer Mike Pyle reiterated his target of achieving between 10 per cent and 15 per cent EBITDA growth in 2019. Looking out to 2020, Mr. Pyle said, “We are in the midst of our 2020 budget process and are not yet ready to provide formal guidance for this period but I am able to tell you that we anticipate the growth in 2020 will match and likely exceed that in 2019. We will provide formal guidance to the market when we report our year-end results in February.”
On Nov. 5, the company announced that it secured a new credit facility, providing capital of up to $900-million and giving EIC the financial flexibility to fund future acquisitions.
On the earnings call, chief financial officer Darryl Bergman said, “We announced EIC has entered into a new credit facility. We were extremely pleased with our bank syndicate in turning this around quickly and for their ongoing support with this investment grade equivalent credit agreement, which gives us a more favorable pricing, more flexible covenants and extended 4-year term and increases the facility from $1 billion to approximately $1.3 billion. In addition, the accordion feature has increased from $100 million to $300 million, which at EIC’s option to execute would provide the company access to a facility of $1.6 billion. Further, the new credit agreement provides improved pricing on both amounts borrowed in the facility and standby charges paid for the unutilized portion of the facility. The company’s maximum leverage ratio has been increased from 3.25 times to 4 times, and the maturity of the facility is now November 5, 2023.”
On Oct. 29, the company completed a bought deal financing, issuing 2,139,000 shares at an offering price of $37.65. Net proceeds from the financing exceeded $76-million with proceeds earmarked to fund its two recent acquisitions (LV Control Mfg. Ltd. and Advanced Window Inc.) that will strengthen EIC’s manufacturing segment.
The company pays its shareholders a monthly dividend of 19 cents per share or $2.28 per share on a yearly basis. This translates to a current annualized dividend yield of 5.1 per cent.
In Aug., management announced a 4 per cent dividend increase, raising its monthly dividend to its current level of 19 cents per share from 18.25 cents per share.
During the trailing 12 months, the payout ratios based on adjusted net earnings and free cash flow less maintenance capital expenditures were 72 per cent and 57 per cent, respectively.
There are 11 analysts covering this company, of which nine analysts have buy recommendations and two analysts have neutral recommendations (RBC Dominion Securities’ Derek Spronck and CIBC World Markets’ Scott Fromson).
The firms providing research coverage on the company are as follows in alphabetical order: AltaCorp Capital, Canaccord Genuity, CIBC World Markets, Cormark Securities, Industrial Alliance Securities, Laurentian Bank Securities, National Bank Financial, Raymond James, RBC Dominion Securities, Scotiabank, and TD Securities.
Earlier this month, six analysts raised their target prices.
- RBC’s Derek Spronck to $43 (the low on the Street) from $40.
- CIBC’s Scott Fromson by $1 to $43 (also the low on the Street).
- Canaccord’s Raveel Afzaal to $45 from $44.
- Laurentian’s Nauman Satti to $53 from $47.
- Industrial Alliance’s Nav Malik to $55 from $50.
- AltaCorp’s Chris Murray by $1 to $52.
The consensus revenue estimate is $1.33-billion for 2019, rising to $1.495-billion in 2020. The Street is forecasting EBITDA of $327-million in 2019, climbing 14 per cent to $372-million the following year. The consensus earnings per share estimate is $2.89 in 2019, and anticipated to increase 15 per cent to $3.33 in 2020.
In recent months, EBITDA estimates have increased for 2020. For instance, three months ago, the consensus EBITDA estimates were $327-million for 2019 and $356-million for 2020.
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 7.1 times the 2020 consensus estimate, above its three-year historical average of 6.4 times, but below its peak multiple of nearly 8 times during this period.
The average one-year target price is $48.64, implying the share price has nearly 10 per cent upside over the next 12 months (a potential total return of just under 15 per cent including the yield). Target prices range from a low of $43 to a high of $55 (from Raymond James’ Steve Hansen and Industrial Alliance’s Navdeep Malik). Individual target prices are as follows in numerical order: two at $43, $45, three at $47, $48, $52, $53, and two at $55.
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 has rallied 57 per cent. Over the past four trading days, the share price has increased 10 per cent. Consequently, the positive price momentum may pause in the near-term as the share price digests these gains. Furthermore, the stock price is approaching major overhead resistance around $45, which is close to its record closing high of $45.09 reached in Dec. 2016.
Should the share price come under pressure, there is strong downside support around $40, which is close to its 50-day moving average (at $39.24).
This small-cap stock with a market capitalization of $1.4-billion can be thinly traded at times. Again, the three-month historical daily average trading volume is approximately 160,000 shares. However, there are days when less than 100,000 shares are traded.
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.