On today’s Breakouts report, there are 34 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).
Featured today is an industrial dividend stock that is on the positive breakouts list – Bird Construction Inc. (BDT-T). Year-to-date, the share price is up 51 per cent, making it the 14th-best performing stock out of 247 stocks in the S&P/TSX SmallCap Index.
Last week, the company reported better-than-expected third-quarter financial results for the fifth consecutive quarter. As a result, earnings estimates and target prices were revised higher.
The stock has a unanimous buy recommendation from eight analysts and a 12-month forecast price return of 22 per cent, not including the 3.5-per-cent dividend yield. The stock trades at a reasonable valuation, relatively in-line with its five-year historical average.
A brief outline on Bird is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
The company
Ontario-based Bird Construction is a construction company with operations across the country.
In terms of its revenue breakdown, in 2022, 43 per cent stemmed from institutional clients, 42 per cent from industrial clients, and 15 per cent from commercial clients.
Investment thesis
- Government pledges on infrastructure investments.
- Solid backlog of $2.8-billion, a reflection of future revenue.
- Double-digit earnings growth.
- Healthy balance sheet.
- Reliable dividend.
- Attractive dividend yield.
- Reasonable valuation.
- Key drivers: 1) securing additional contract wins; 2) acquisitions that will further diversify the company’s revenue profile and geographic exposure; and 3) continued margin improvement.
Quarterly earnings results and outlook
After the market closed on Nov. 7, the company reported better-than-expected third-quarter financial results.
Revenue came in at $783.8-million, surpassing the consensus estimate of $737-million and up 17 per cent year-over-year. Organic, or internal, revenue growth was approximately 16 per cent. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $49.3-million, above the Street’s estimate of $41-million and up 58 per cent year-over-year. The adjusted EBITDA margin increased to 6.3 per cent compared to 4.7 per cent last year. Adjusted earnings per share was 54 cents, exceeding the Street’s estimate of 42 cents.
During the quarter, the company added $612-million to its backlog bringing it to $2.8-billion at quarter-end. The following day, the share price rallied nearly 7 per cent on high volume with roughly 680,000 shares traded, well above its three-month historical daily average trading volume of approximately 170,000 shares.
Looking ahead, in the third-quarter management discussion and analysis management stated, “Bird continues to deliver on its strategic priorities, approaching the end of 2023 with improving margin performance and significant revenue growth. The visibility provided by the company’s backlog and pending backlog of work with higher embedded margins, as well as a healthy bid pipeline, sets the stage for continued robust performance and increased shareholder value through 2024….The company’s risk-balanced and diversified combined backlog, consisting of $2.8 billion backlog and $3.3 billion pending backlog, provides good visibility into 2024 organic revenue growth and further margin improvements. Supported by a combination of higher embedded margins in combined backlog and achieving additional leverage on the company’s cost structure, adjusted EBITDA margin is expected to continue to improve in 2024, resulting in adjusted EBITDA and earnings per share growth that will outpace revenue growth. The company’s bid pipeline remains robust, underpinned by sustained demand across Bird’s core markets - industrial, institutional and infrastructure.”
Dividend policy
The company pays its shareholders a monthly dividend of 3.58 cents per share, equating to a current annualized dividend yield of 3.5 per cent.
Analysts’ recommendations
This small-cap stock with a market capitalization of $659-million is well covered by the Street. There company has a unanimous buy recommendation from eight analysts.
The firms providing research coverage on the company are ATB Capital Markets, Canaccord Genuity, CIBC World Markets, Laurentian Bank, National Bank Financial, Raymond James, Stifel Canada, and TD Securities.
Revised recommendations
After the company released its third-quarter financial results, all eight analysts increased their target.
- ATB’s Chris Murray to $15 from $13.25.
- Canaccord Genuity’s Yuri Lynk to $15 from $14.
- CIBC’s Jacob Bout to $14.50 from $12.50.
- Laurentian Bank’s Jonathan Lamers to $15 from $13.
- National Bank’s Maxim Sytchev to $12.50 (the low on the Street) from $11.50.
- Raymond James’ Frederic Bastien to $16 from $13.
- Stifel’s Ian Gillies to $17.50 (the high on the Street) from $16.
- TD’s Mike Tupholme to $14.50 from $12.50.
Financial forecasts
Double-digit earnings growth is anticipated.
The consensus EBITDA estimates are $133-million in 2023, up from $101-million reported in 2022, and $153-million in 2024. The Street is forecasting earnings per share of $1.30 in 2023, up from 93 cents reported in 2022, and $1.50 in 2024.
Earnings forecast have been rising. Three months ago, the Street was forecasting EBITDA of $125 million in 2023 and $142 million in 2024. The consensus earnings per share estimates were $1.19 in 2023 and $1.37 in 2024.
Valuation
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 4.7 times the 2024 consensus estimate, slightly above its five-year historical average of 4.5 times. On a price-to-earnings basis, the stock is trading at a P/E multiple of 8.2 times the 2024 consensus estimate, just below its five-year historical average multiple of 8.5 times.
The average 12-month target price is $15, implying the share price has 22-per cent upside potential over the next year. Individual target prices are: $12.50 (from National Bank’s Maxim Sytchev), two at $14.50, three at $15, $16, and $17.50 (from Stifel’s Ian Gillies).
Insider transaction activity
Year-to-date, only one insider has reported trading activity in the public market.
On Sept. 7, Rob Otway, executive vice-president of Buildings West, purchased 10,000 shares at an average price per share of approximately $10.87, increasing this particular account’s position to 50,000 shares. The cost of this investment exceeded $108,000.
Chart watch
Year-to-date, the share price has rallied 51 per cent, outperforming the S&P/TSX Small Cap Industrials sector, which is up 9.6 per cent, as well as the S&P/TSX Small Cap Index that is down 3.2 per cent. The stock is the 14th-best performing stock out of 247 stocks in the S&P/TSX SmallCap Index.
In terms of key technical resistance and support levels, there is a ceiling of resistance between $14 and $15. Looking at the downside, the share price has strong technical support between $9.50 and $10, near its 200-day moving average (at $9.41). Failing that, there is support around $8.
ESG Risk Rating
Looking at three risk rating providers, Sustainalytics, MSCI and Bloomberg, the company currently does not have an environmental, social and corporate governance (ESG) risk rating.
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.
This report should not be considered an investment recommendation.
Jennifer Dowty