On Monday, the S&P/TSX composite index turned positive for the year with a year-to-date price return (not including the yield) of 0.18 per cent. Energy stocks charged higher while gold stocks tumbled. This price momentum is reflected in today’s Breakouts report.
There are 135 stocks on the positive breakouts list (stocks with positive price momentum). Meanwhile, 36 stocks, mostly gold and silver stocks, are on the negative breakouts list (stocks with negative price momentum).
Discussed today is one of the few non-precious metals stocks that is on the negative breakouts list – Jamieson Wellness Inc. (JWEL-T).
Just weeks ago, on Nov. 6, Jamieson Wellness’ share price closed at a record high of $43.21. Since then, the stock price has plunged nearly 22 per cent with the stock nearing oversold territory. The stock has come under pressure as confidence for a coronavirus vaccine grows. A concern by investors is that the company’s growth has been boosted from the coronavirus with individuals focusing on health and wellness.
Looking out to 2021, investors are worried that we will see a deceleration in growth with tougher year-over-year comparisons. As a result, investors are taking profits off the table, rotating out of this health and wellness stock and buying cyclical stocks.
For now, the downtrend remains intact. This is a stock to watch as the share price drifts down towards the low $30 level. Remember, stocks often overshoot to the upside as well as to the downside. Wait for the stock price to find a bottom and stabilize.
A brief outline is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
Toronto-based Jamieson Wellness manufactures and distributes natural health products including vitamins and minerals, supplements, digestive health products, sleep aids, and herbal extracts.
The company’s revenue stems from two business segments, its branded business and its strategic partners business. In 2019, the Jamieson Brands segment represented 89 per cent of adjusted EBITDA (earnings before interest, taxes, depreciation and amortization). The Jamieson brand is the best-selling brand by sales in Canada within the VMS (vitamins, minerals, and supplements) market. Other brands include Progressive, Precision, Iron Vegan and Smart Solutions by Lorna Vanderhaeghe.
Through the company’s Strategic Partners segment, Jamieson Wellness co-manufactures products for blue-chip companies. Last year, this segment represented 11 per cent of adjusted EBITDA.
In December of 2019, Jamieson Wellness was added to the S&P/TSX composite index.
After the market closed on Nov. 5, the company reported strong third-quarter financial results.
Revenue increased 19.2 per cent year-over-year to $105.6-million, ahead of the Street’s forecast of $99.6-million with growth from both its branded domestic sales as well as international sales. Revenue from the Jamieson Brands segment grew 17.7 per cent year-over-year to $82.6-million with domestic sales increasing 9.5 per cent and international sales expanding 82.2 per cent (led by growth in China). Revenue from the Strategic Partners segment increased 25 per cent to $23-million. Adjusted EBITDA was $22.9-million, surpassing the consensus estimate of $22.1-million and up 18.2 per cent year-over-year. The adjusted EBITDA margin was 21.7 per cent, relatively unchanged from last year (21.9 per cent realized during the same period last year). Adjusted earnings per share came in at 30 cents, a penny ahead of the consensus estimate and up from 24 cents reported last year.
The following day, the share price rallied 6.5 per cent and closed at a record high on high volume with approximately 440,000 shares traded. This is well above the three-month historical daily average trading volume of approximately 200,000 shares.
For now, management is focused on organic, or internal, growth rather than acquisition growth. Expansion in China is a key objective by management given that the country is the second largest vitamin market worldwide.
On the earnings call, President and Chief Executive Officer Mark Hornick said, “Organic growth is the single best source of return for us at the moment. Multiples for acquisitions are extremely high right now but we are so pleased that, in our case, our organic growth opportunities have never been bigger.”
For 2020, management expects to realize revenue of between $395-million and $400-million, up from its previous guidance of between $385-million and $395-million. Adjusted EBITDA is anticipated to come in at between $86-million and $88-million, at the upper end of its previous target of between $84-million and $88-million. Adjusted earnings per share is expected to be between $1.11 and $1.15, compared to its prior guidance of between $1.08 and $1.15.
- Revenue and earnings growth.
- Dividend growth.
- Market leadership.
- Valuation is becoming more attractive given the stock’s correction.
- Nearing technically oversold levels. However, the downtrend remains intact.
- Wait for the share price to bottom out, stabilize.
The company pays its shareholders a quarterly dividend of 12.5 cents per share, or 50 cents per share on a yearly basis, translating to a current annualized dividend yield of 1.5 per cent.
Since the stock was publicly-listed in July 2017, the company has announced four dividend hikes, in Aug. 2018, Aug. 2019, Feb. 2020 and Aug 2020.
This small-cap consumer staples stock with a market capitalization of $1.35-million is actively covered by eight analysts, and all eight analysts have buy recommendations.
The firms providing recent research coverage on the company are as follows in alphabetical order: Accountability Research, BMO Nesbitt Burns, Canaccord Genuity, CIBC World Markets, Eight Capital, National Bank Financial, RBC Dominion Securities, and Scotia Capital.
Earlier this month, seven analysts raised their expectations.
- Canaccord Genuity’s Tania Gonsalves upgraded her recommendation to a “buy” from a “hold” and raised her target price to $48 (the high on the Street) from $35.75.
- CIBC World Markets’ Matt Bank lifted his target price to $46 from $42.
- Scotia Capital’s George Doumet raised his target price to $42 from $37.
- National Bank Financial’s Endri Leno tweaked his target price to $42.75 from $41.50.
- BMO Nesbitt Burns’ Peter Sklar increased his target price to $45 from $43.
- RBC Dominion Securities’ Sabahat Khan lifted his target price to $44 from $39.
- Accountability Research’s Mark Rosen hiked his target price by $5 to $44.
The Street is forecasting revenue of $398-million in 2020, up from $345-million reported in 2019, with revenue expected to rise to $429-million in 2021 and $463-million in 2022. The consensus EBITDA estimates are $87-million in 2020, up from $75.9-million reported in 2019, and anticipated to reach $99-million in 2021 and $107-million in 2022. The consensus earnings per share estimates are $1.14 in 2020, up from 96 cents reported in 2019, and expected to rise to $1.28 in 2021 and $1.43 in 2022.
Earnings expectations have remained intact throughout the coronavirus pandemic. To illustrate, nine months ago (in Feb.), the Street was forecasting revenue of $371-million in 2020 and $396-million in 2021. EBITDA forecasts were $81.6-million for 2020 and $89-million for 2021. The consensus earnings per share estimates were $1.06 for 2020 and $1.17 for 2021. Meanwhile, four months ago (in July), the Street was forecasting revenue of $380-million in 2020 and $406-million in 2021. EBITDA forecasts were $83.7-million for 2020 and $91.9-million for 2021. The consensus earnings per share estimates were $1.09 for 2020 and $1.22 for 2021.
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 15.3 times the 2021 consensus estimate, slightly above its historical multiple (since 2017) of 13.8 times but below its peak multiple of over 19 times during this time period.
The stock is trading at a price-to-earnings multiple of 26.5 times the 2021 consensus estimate, above its historical average multiple of 22.8 times but below its peak multiple of approximately 34 times.
The average one-year target price is $44.47, implying the share price has 31 per cent upside potential over the next year. Individual target prices are as follows in numerical order: $42 (from George Doumet at Scotia Capital), $42.75, three at $44, $45, $46, and $48 (from Tania Gonsalves at Canaccord Genuity).
Insider transaction history
In recent days, two board members have been buyers in the public market.
On Nov. 12, chairman David Williams invested over $366,000 in shares of Jamieson Wellness. He acquired 10,000 shares at a price per share of $36.6835 for an account in which he has control or direction over.
On Nov. 9 and Nov. 10, director Catherine Potechin bought a total of 2,500 shares at an average cost per share of approximately $39.90. The cost of these purchases totaled nearly $100,000.
The stock began trading on the Toronto Stock Exchange in July 2017. Given the stock’s brief trading history, technical analysis is limited.
Year-to-date, the share price is up 31 per cent, outperforming the S&P/TSX Composite Index and the S&P/TSX consumer staples sector index, which are up 0.18 per cent and 3.8 per cent, respectively.
On Nov. 6, the share price closed at a record high of $43.21. Since then, the stock price has declined nearly 22 per cent. Given this correction, the stock is nearing oversold territory with an RSI (relative strength index) reading of 34. Generally, an RSI reading at or below 30 reflects an oversold condition.
Looking at key technical resistance and support levels, the stock has a major ceiling of resistance is around $40, close to its 50-day moving average (at $39.48). Should the share price continue to slide, there is initial technical support between $33 and $34, near its 200-day moving average (at $34.14) and a 50 per cent retracement of its recent price move that took the share price up to over $43 in Nov. from $24 in March. Failing that, there is support around $31.
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.
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