On today’s TSX Breakouts report, there are 32 stocks on the positive breakouts list (stocks with positive price momentum), and 31 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a stock that appears on the positive breakouts list with the share price closing at a record high on Wednesday. This is a stock that has been resistant to recent market volatility. During the wild market moves experienced over the past week and a half, the share price of this stock has held steady.
Fundamentally, the company had delivered strong operational results, and over the years, the company has reported a string of better-than-expected quarterly earnings results. While the stock appears to be fairly valued at current levels, acquisition and organic growth could lead to positive earnings revisions and further upside potential in the stock price.
The security highlighted today is Waste Connections Inc. (WCN-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
Waste Connections’ core business offers solid waste collection, solid waste disposal and transfer, and solid waste recycling services with operations across North America. Solid waste collection is the company’s largest business segment, representing 69 per cent of the company’s total revenue in 2018. The company has operations in 41 states and six provinces. There is seasonality in the company’s revenues. Historically, revenues are lowest in the winter months, or first quarter.
After the market closed on April 24, the company reported solid first-quarter earnings results. Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) came in at US$385.7-million, marginally ahead of the consensus estimate of US$384.6-million. Adjusted EBITDA margins were 31 per cent. The company realized price increases of 5.2 per cent. Adjusted earnings per share came in at 62 cents, two cents above the Street’s expectations. The share price rallied 2 per cent the following day.
The earnings call was positive, highlighting the company’s growth opportunities. President Worthing Jackman indicated that the company is, “well positioned for continued above-average acquisition activity.”
In addition, the chief financial officer Mary Anne Whitney provided solid guidance for the next quarter, “Revenue in Q2 (second quarter) is estimated to be approximately $1.36-billion. We expect price growth for solid waste to be in the range of 4.5 per cent to 5 per cent in Q2 with volume in the range of flat to up 50 basis points, a sequential increase of about 1.5 per cent, reflecting the pickup in special waste and other activity noted earlier. Adjusted EBITDA in Q2 is estimated to be approximately 31.9 per cent of revenue or about $434-million in spite of margin dilutive acquisitions completed since the year ago period and lower recycled commodity values.”
The stock is dual-listed trading on both the Toronto Stock Exchange and the New York Stock Exchange under the same ticker, WCN.
The company pays its shareholders a quarterly dividend in U.S. dollars of 16 US cents per share, or 64 cents per share yearly. This equates to an annualized dividend yield of approximately 0.7 per cent.
Management is committed to its dividend. In Oct. 2018, management announced a 14-per-cent dividend increase, lifting the quarterly dividend to its current level of 16 US cents per share from 14 US cents per share.
There are 14 analysts who actively cover this stock, of which 11 analysts have buy recommendations, two analysts have hold recommendations, and one analyst (Matthew Young, the analyst at Morningstar) has a “sell” recommendation.
The firms providing recent research on the company are as follows in alphabetical order: AltaCorp Capital, BMO Nesbitt Burns, CIBC World Markets, Goldman Sachs, KeyBanc Capital, Macquarie, Morningstar, Oppenheimer & Co., Raymond James, RBC Dominion Securities Scotiabank, Stifel, TD Securities, and Veritas Investment Research.
Earlier this month, Sean Eastman, the analyst at KeyBanc, lifted his target price to US$98 from US$97.
The Street is expecting EBITDA of US$1.72-billion in 2019 and US$1.87-billion the following year. The Street is forecasting earnings per share of US$2.80 in 2019 rising to US$3.12 in 2020.
Financial forecasts have been stable over recent months, rising slightly. For instance, three months ago, the consensus EBITDA estimates were US$1.71-billion for 2019 and US$1.85-billion for 2020. The consensus earnings per share estimates were US$2.77 for 2019 and US$3.07 for 2020.
According to Bloomberg, Waste Connections is trading at a peak enterprise value-to-EBITDA multiple of 15.3 times the 2020 consensus estimate, well above its three-year historical average of 13.3 times.
The consensus one-year target price is US$97.56, suggesting the stock price is fairly valued with limited, 4 per cent, near-term upside potential.
Insider transaction activity
Year-to-date, there has not been any trading activity in the public markets reported by insiders.
Since the beginning of 2016, the share price has been in an uptrend with a minor breach occurring in the fourth-quarter of 2018. Year-to-date, the share price has soared nearly 25 per cent, closing at a record high on Wednesday.
Looking at key resistance and support levels, the stock’s next major resistance level is around $135. Looking at the downside, there is strong technical support level around $120, near its 50-day moving average. Failing that, there is support around $107, close to its 200-day moving average.
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.