On today’s TSX Breakouts report, there are 55 stocks on the positive breakouts list (stocks with positive price momentum), and 13 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a stock that appeared on the negative breakouts list earlier in the week. The stock has been a laggard, underperforming the market despite reporting solid fourth quarter financial results and announcing a dividend increase. Year-to-date, the share price is relatively flat, down 1 per cent. For patient investors, this stock may see its share price climb higher once management can show a sustainable improvement in its margins. On a valuation basis, the stock is trading at a discount to its historical average. The stock has 10 buy recommendations with an anticipated one-year price return of 32 per cent.
The security highlighted today is Aecon Group Inc. (ARE-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
Calgary-based Aecon is a construction and infrastructure development company serving both the private and public sectors. There is seasonality in the company’s operations with the first quarter the weakest.
Looking at the company’s fundamentals, after the market closed on March 5, the company reported better-than-expected fourth quarter financial results that sent the share price rising 5 per cent the following trading session. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) came in at $72.4-million, above the consensus estimate of $68.6-million. However, the company reported an EBITDA margin of 7.6 per cent, down from 8.5 per cent reported during the same period last year. As at Dec. 31, the company’s backlog stood at $6.8-billion.
On the earnings call, president and chief executive officer Jean-Louis Servranckx remarked on the company’s strong backlog, which will translate into future revenue, “Aecon ended 2018 with a record year-end backlog of $6.8 billion. Of note, backlog to be worked off in the next 12 months of $2 billion increased 34 per cent over last year, and approximately 70 per cent of the backlog is for work off beyond the next 12 months, providing significant visibility and stability to Aecon’s long-term outlook. This is especially so when combined with Aecon’s annual recurring revenue, which grew by 4 per cent over last year, driven primarily by utilities work in telecommunications, gas, and hydro distribution, as well as operations at the Bermuda Airport. We remained focused on strong execution of our backlog, while ensuring we continued to build capacity and flexibility for further growth.”
In the earnings release, Mr. Servranckx said: "The overall outlook for 2019 remains solid, as our current strong backlog, robust pipeline of future opportunities, and ongoing concessions are expected to lead to an improved adjusted EBITDA margin”.
The company will be reporting its first quarter financial results after the market closes on Thurs. April 25 and hosting an earnings conference call the following morning at 10 a.m. (ET).
Last month, the company announced that the board of directors approved a 16 per cent dividend increase.
The company will now pay its shareholders a quarterly dividend of 14.5 cents per share, or 58 cents per share on a yearly basis. This equates to an annualized yield of 3.3 per cent.
This small-cap security with a market capitalization of $1.05-billion is covered by 11 analysts on the Street, of which 10 analysts have buy recommendations and one analyst (Derek Spronck at RBC Capital Markets) has a ‘sector perform’ recommendation.
The firms providing research coverage on Aecon are as follows in alphabetical order: AltaCorp Capital, Canaccord Genuity, CIBC Capital Markets, Desjardins Securities, GMP, Industrial Alliance Securities, National Bank Financial, Paradigm Capital, Raymond James, RBC Capital Markets, and TD Securities.
In March, four analysts revised their expectations – all higher.
National Bank Financial’s Maxim Sytchev lifted his target price to $24 from $21.50. Canaccord Genuity’s Yuri Lynk bumped his target price to $25 (the high on the Street) from $24. Neil Linsdell, an analyst at Industrial Alliance Securities, raised his target price by $1 to $24. AltaCorp Capital’s Chris Murray increased his target price by $3 to $23.50.
The consensus EBITDA estimates are $210-million in 2019, up from a record adjusted EBITDA of $207-million reported in 2018, and increasing over 7 per cent to $226-million in 2020. The Street is forecasting earnings per share of $1.05 in 2019 rising to $1.22 the following year.
Forecasts have been relatively stable over recent months. For instance, three months ago, the Street was forecasting EBITDA of $211-million in 2019 and $227-million in 2020.
The stock is commonly valued on an enterprise value-to-EBITDA multiple basis. According to Bloomberg, the stock is trading at an EV/EBITDA multiple of 4.7 times the 2020 consensus estimate, below the three-year historical average multiple of 6.1 times.
The average 12-month target price is $23.05, implying the share price has 32 per cent upside potential over the next year. Individual target prices are as follows in numerical order: $20 (the low on the Street is from Derek Spronck, the analyst at RBC Capital Markets), two at $22, three at $23, $23.50, three at $24 and $25 (the high on the Street is from Yuri Lynk, the analyst at Canaccord Genuity).
Insider transaction activity
So far this year, only one insider has reported transactions in the public market.
Between March 11 and March 13, John Beck, the founder and executive chairman, sold 46,354 shares at an average price per share of $18.32, eliminating this account’s position. Proceeds from the sale totaled approximately $849,000.
While the S&P/TSX composite index has rallied over 13 per cent year-to-date, shares of Aecon have been a laggard, falling 1 per cent making it one of the worst performing stocks in the S&P/TSX composite industrials sector.
The share price is currently sitting near a major support level of roughly $17.50, which is near its 200-day moving average (at $17.42). Should the share price break materially below this support level, the next major support level is around $16.
Looking at the upside, there is technical resistance around $18, which is close to its 50-day moving average (at $18.22). After that, there is a ceiling of resistance around $20.
This small-cap security has reasonable liquidity. The three-month historical daily average trading volume is approximately 445,000 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.