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On today’s TSX Breakouts report, there are 33 stocks on the positive breakouts list (stocks with positive price momentum), and 17 securities are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a stock that appears on the positive breakouts list. The share price has rallied 17 per cent since the company reported better-than-expected quarterly earnings results in early-May. The security highlighted today is consumer stock Cott Corp. (BCB-T).

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

The company

Ontario-based Cott is a direct-to-consumer delivery provider of products including bottled water, coffee, and tea. The company services businesses, restaurants, hotels, healthcare properties, and residences across North America and Europe. Home and office bottled water delivery (HOD) represents the company’s largest business segment in terms of revenue, accounting for 41 per cent of the company’s total revenue last quarter.

Before the market opened on May 3, the company reported its first-quarter financial results. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was U.S.$64.5-million, up 8 per cent from U.S. $59.9-million reported during the same period last year and higher than the Street’s forecast of U.S. $63.1-million. For 2018, management increased its revenue guidance to over $2.35-billion from $2.3-billion and also raised its adjusted free cash flow guidance to between U.S. $115-million and U.S. $120-million from U.S. $115-million. Revenue is anticipated to expand between 3 per cent to 4 per cent in 2018. The share price rallied 6 per cent during the trading session.

On the earnings call, Chief executive officer Jerry Fowden identified management’s key objectives as, “To continue to drive investment in innovation and organic growth; seek to accelerate our value-creating tuck-in acquisitions; and introduce the share repurchase program, while continuing to de-lever into the 2 times EBITDA range by 2021.” Mr. Fowden ended his prepared remarks with a commentary on the company’s transformation noting, “There still seems to be a number of investors, who are not fully aware of the transformation we’ve undertaken from old Cott to new Cott, and thus, we need to continue to work hard, not just on the rebranding of new Cott, but also to ensure we fully communicate the many positive attributes of new Cott to investors, which includes: deliberate consolidated revenue growth of 3 per cent to 4 per cent each year; being a reoccurring revenue business service model; having strong route based barriers to entry; demonstrating attractive margins, low customer concentration, and the ability to take price when needed; alongside strong cash conversion and a growing free cash flow outlook; and having a strong balance sheet.”

The company is dual-listed trading on the Toronto Stock Exchange under the ticker BCB and on the New York Stock Exchange under the ticker COT.

Dividend policy

The company pays its shareholders a quarterly dividend of U.S. 6 cents per share or U.S. 24 cents per share yearly. This equates to an annualized dividend yield of 1.5 per cent. The company has maintained its dividend at this level since 2014.

Analysts’ recommendations

After the company reported its first-quarter financial results, nine analysts issued research reports. Currently, six analysts have buy recommendations and three analysts have hold recommendations. The firms issuing recent research reports on the company are as follows: BMO Capital Markets, Canaccord Genuity, CIBC Capital Markets, Goldman Sachs, J.P. Morgan, Jefferies, RBC Capital Markets, Scotia Capital and Stifel.

At the beginning of the month, Peter Grom, the analyst at J.P. Morgan, upgraded the stock to an ‘overweight’ from a ‘neutral’ recommendation and increased his target price to U.S.$19 from U.S.$14.

Last month, two analyst revised their expectations. Kevin Grundy from Jefferies also upgraded the stock to a ‘buy’ recommendation from a ‘hold’ recommendation and boosted his target price to U.S.$20 from U.S.$17. Meanwhile, Goldman Sachs’ analyst Judy Hong increased her target price by $1 to U.S. $18.

Financial forecasts

All financial figures are expressed in U.S. dollars. The consensus EBITDA estimates are $318-million in 2018, rising to $342-million in 2019. The consensus earnings per share estimates are 28 cents in 2018 and 44 cents in 2019.

Valuation

According to Bloomberg, the stock trades at an enterprise value-to-EBITDA multiple of 9.9 times the 2019 consensus estimate, which is slightly above its three-year historical average of 8.8 times but well below its peak multiple of nearly 14 times during this time period.

The average 12-month target price is U.S. $18.25 (approximately Cdn $23.51), implying the stock has roughly 10 per cent upside potential over the next year. Individual target prices provided by nine firms are as follows in numerical order (all denominated in U.S. dollars): $15 (lowest target price is from the analyst at Stifel), $17.50, $18, three at $19, and three at $20.

Insider transaction activity

Year-to-date, three insiders have reported trading activity in the public market – all sales.

On March 9, chief financial officer Jay Wells sold 35,000 shares, reducing his portfolio’s position to 76,399 shares.

On March 8, Marni Morgan Poe, vice-president, general counsel and secretary, divested 30,000 shares leaving 104,702 shares in her account.

On March 8, chief accounting officer Jason Ausher sold 5,000 shares with a remaining account balance of 15,040 shares.

Chart watch

Year-to-date, the share price is up modestly, 2 per cent, outperforming the S&P/TSX consumer staples sector return, which is down 7 per cent.

Looking at key resistance and support levels, the share price has an initial ceiling of resistance just below $23. Looking at the downside, there is technical support around $20, which is near its 200-day moving average (at $19.91) and its 50-day moving average (at $19.64). Failing that, there is support around $18.

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 BreakoutsJune 13 close
ACR.UN-TAgellan Commercial REIT $13.59
AEM-TAgnico Eagle Mines Ltd $59.41
ATZ-TAritzia Inc. $14.69
BAM.A-TBrookfield Asset Management Inc $54.06
CF-TCanaccord Genuity Group Inc $7.14
GOOS-TCanada Goose Holdings Inc. $58.80
CFX-TCanfor Pulp Products Inc $23.72
CCL.B-TCCL Industries Inc $65.70
BCB-TCott Corp $21.44
DSG-TDescartes Systems Group Inc $40.47
EDR-TEndeavour Silver Corp $4.20
FFH-TFairfax Financial Holdings Ltd $752.50
FR-TFirst Majestic Silver Corp $10.09
FSV-TFirstService Corp $96.33
MIC-TGenworth MI Canada Inc $42.25
GTE-TGran Tierra Energy Inc $4.42
HSM-THelius Medical Technologies Inc. $16.65
JWEL-TJamieson Wellness Inc. $27.29
KL-TKirkland Lake Gold Inc $25.98
LUC-TLucara Diamond Corp $2.18
NA-TNational Bank of Canada $63.89
NTR-TNutrien Ltd. $69.54
POW-TPower Corp of Canada $30.74
QBR.B-TQuebecor Inc $26.03
SJR.B-TShaw Communications Inc $27.60
SNC-TSNC-Lavalin Group Inc $60.82
TOY-TSpin Master Corp. $53.59
X-TTMX Group Ltd $84.55
TMQ-TTrilogy Metals Inc. $2.12
VRX-TValeant Pharmaceuticals International Inc $34.89
WDO-TWesdome Gold Mines Ltd. $2.63
YRI-TYamana Gold Inc $3.91
Y-TYellow Pages Ltd $10.06
Negative Breakouts
AGT-TAGT Food & Ingredients Inc $15.50
BXE-TBellatrix Exploration Ltd $1.34
CEU-TCanadian Energy Services & Technology Co $4.59
CHR-TChorus Aviation Inc $6.97
ECS-TeCobalt Solutions Inc. $1.17
EFX-TEnerflex Ltd $14.37
EXE-TExtendicare Inc $7.35
HIVE-THIVE Blockchain Technologies Ltd. $0.93
IDG-TIndigo Books & Music Inc $17.55
IFC-TIntact Financial Corp $94.98
KML-TKinder Morgan $15.54
LNR-TLinamar Corp $62.47
NEPT-TNeptune Technologies & Bioressources Inc $3.07
NGD-TNew Gold Inc $2.73
PIF-TPolaris Infrastructure Inc. $14.80
PLI-TProMetic Life Sciences Inc $0.65
WJA-TWestJet Airlines Ltd $18.85

Source: Bloomberg

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