On today’s Breakouts report, there are nine stocks on the positive breakouts list (stocks with positive price momentum), and 42 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a stock that appeared on the positive breakouts list last week and has a unanimous buy recommendation from seven analysts - Calian Group Ltd. (CGY-T).
Calian has been a strong outperformer, rallying 14 per cent year-to-date. On May 19, its share price closed at a record high of $71.58. However, now that its better-than-expected quarterly earnings results have been digested, given the overall market weakness, the share price may pullback in the near-term with initial support in the mid-$60′s.
A brief outline on Calian is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
Ottawa-based Calian is a company that operates four business segments: Health, Advanced Technologies, Information Technology and Cyber Solutions (ITCS), and Learning.
The Health business segment includes management of health programs and clinics, along with psychological assessment services with customers such as the DND (Department of National Defence), the Canada Border Services Agency, the Government of Nunavut and the RCMP. In fiscal 2021, 38 per cent of total revenue was from its Health segment.
The Advanced Technologies segment includes engineering services and products with customers such as the DND, Inmarsat, and the Canadian Space Agency. In fiscal 2021, 32 per cent of total revenue was from its Advanced Technologies segment.
Information Technology and Cyber Solutions (ITCS) segment includes cloud solutions, IT consulting services and cyber security solutions with customers including Shared Services Canada that’s an agency of the Government of Canada, and Fraser Health. In fiscal 2021, 16 per cent of total revenue was from its ITCS segment.
The Learning segment includes custom training and course development with customers that include the DND, NATO, the Canadian Armed Forces, the French Ministry of Defence, the German Ministry of Defence, and the City of Ottawa. In fiscal 2021, 14 per cent of total revenue was from its Learning segment.
- Revenue stability from government contracts. In fiscal 2021, approximately 50 per cent of total revenue was from the government. A significant percentage of the company’s total revenue stems from the DND.
- Customer retention. High rate of contract renewals.
- Diversified revenue mix from four operating segments.
- Steady double-digit top line growth. In fiscal 2021, total revenue increased 20 per cent, of which 8 per cent was internal or organic growth, and 12 per cent was from acquisitions. Overall revenue growth was 26 per cent in fiscal 2020, 13 per cent in fiscal 2019 and 11 per cent in fiscal 2018.
- Acquisition growth. On the earnings call, chief financial officer Patrick Houston noted, “M&A [mergers and acquisitions] agenda is one of the main priorities we have so we’re going to continue to execute on that. But I think we also stick to doing disciplined transactions that are good value that generate long-term growth for us.”
- High backlog at over $1 billion. Contracted backlog reflects future revenue.
- Healthy balance sheet.
- Valuation: The stock is trading slightly above its 5-year historical average multiples.
- Reliable, stable dividend.
- Potential catalysts: 1) Contract wins; and 2) acquisition announcements.
- Key potential risks include: 1) Higher input costs pressuring margin expansion; 2) higher labour costs pressuring margins.
After the market closed on May 11, the company reported its better-than-expected second-quarter financial results (the company’s fiscal year-end is Sept. 30).
The company reported revenue of $142-million, up 3 per cent year-over-year. Gross margin was a record 28 per cent, up from 24 per cent reported during the same period last year. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $16.8-million, above the Street’s forecast of $15.5-million and up 18 per cent year-over-year. Adjusted earnings per share came in at $1.16, surpassing the consensus estimate of 99 cents per share. During the quarter, the company signed $160-million in contracts and exited the quarter with a backlog of $1.3-billion. The company has a healthy balance sheet with $59-million of cash at quarter-end. The following trading day, the share price rallied 3 per cent, and over the following three trading sessions, the share price jumped nearly 9 per cent.
Management maintained its fiscal 2022 guidance, calling for revenue of between $580-million and $625-million, adjusted EBITDA to be between $61-million and $65.5-million, and adjusted net income to be between $41.5-million and $45.5-million.
A significant percentage of the company’s revenue stems from contracts with the Canadian government. Given the relative stability of its government customers, the company has paid its shareholders a consistent quarterly dividend.
The company pays its shareholders a quarterly dividend of 28 cents per share, or $1.12 per share yearly, equating to a current annualized yield of 1.6 per cent.
The quarterly dividend has been maintained at 28 cents per share since 2012.
According to Bloomberg, this small-cap stock with a market capitalization of $796-million has a unanimous buy recommendation from seven analysts.
The firms providing research coverage on the company are as follows in alphabetical order: Acumen Capital, BMO Nesbitt Burns, Canaccord Genuity, Cormark Securities, Desjardins Securities, Echelon Wealth Partners, and Laurentian Bank Securities.
Target prices have remained relatively stable with few revisions. Earlier this month, one analyst revised his target price - Desjardins’ Benoit Poirier to $85 from $80.
The Street is forecasting revenue of $593-million in fiscal 2022, up from $518-million reported in fiscal 2021, with revenue expected to rise 12 per cent to $665-million in fiscal 2023. The consensus EBITDA estimates are $64.5-million in fiscal 2022, and anticipated to increase 13 per cent to $73.2-million in fiscal 2023. The consensus earnings per share estimates are $4.08 in fiscal 2022 and $4.37 the following year.
Earnings expectations have been rising. For instance, four months ago, the Street was forecasting revenue of $567-million in fiscal 2022 and $594-million in fiscal 2023. EBITDA forecasts were $58.5-million for fiscal 2022 and $63.8-million for fiscal 2023. The consensus earnings per share estimates were $3.64 for fiscal 2022 and $3.82 for fiscal 2023.
The stock is trading just above its five-year historical average multiples.
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 10.3 times the fiscal 2023 consensus estimate, slightly above its five-year historical average multiple of 9.3 times, but well below its peak multiple of approximately 14 times during this time period. On a price-to-earnings basis, the stock is trading at 16 times the fiscal 2023 consensus estimate, just above its five-year historical average of 15.1 times but well below its peak multiple of roughly 22 times during this time period.
The average one-year target price is $83.43, implying the share price has 19 per cent upside potential over the next year. Individual target prices are: $78 (from Acumen’s Jim Byrne), two at $80, $81, two at $85, and $95 (BMO’s Deepak Kaushal).
Insider transaction history
Quarter-to-date, there has not been any trading activity in the public market reported by insiders.
On May 19, the share price closed at a record high of $71.58.
The stock has been an outperformer. Year-to-date, Calian share price is up 14 per cent, making it the second best performing stock in the S&P/TSX Small Cap Industrials Sector Index (behind Corus Aviation Inc. whose share price is up 14.2 per cent).
Looking at key technical support and resistance levels, the stock has initial downside support around $65. Failing that, there is support around $60. The stock has a ceiling of resistance around $75, and after that around $80.
This stock is thinly traded, which can increase volatility in the share price. The three-month historical daily average trading volume is approximately 45,000 shares.
ESG Risk Rating
Looking at three ESG risk rating providers, Sustainalytics, MSCI and Bloomberg, the company currently does not have an ESG risk score.
This report is not an investment recommendation.
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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