On today’s TSX Breakouts report, there are 30 stocks on the positive breakouts list (stocks with positive price momentum), and six stocks are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a stock that appears on the positive breakouts list. This small-cap stock is well covered by the Street with 11 analysts issuing recent research reports on the company, of which 10 analysts have buy recommendations. Analysts are forecasting strong earnings growth for the company in 2019 and 2020. The consensus target price implies a potential 18 per cent total return (including the 1 per cent dividend yield) over the next year. The stock highlighted today is ECN Capital Corp. (ECN-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
Toronto-based ECN Capital is a business services provider serving more than 90 U.S. banks and credit unions by originating, managing and advising on prime consumer credit portfolios (loan portfolios and credit card portfolio) through its three core operating segments: Service Finance (provides loan options to consumers for home improvement projects), Triad Financial Services (provides consumer loans for manufactured home purchases) and The Kessler Group (manages and advises on consumer credit card portfolios).
After the market closed on Nov. 12, the company reported better-than-expected third quarter financial results. Adjusted earnings per share came in at 7 cents, well above the Street’s expectations of 4 cents per share. In the earnings release, president Jim Nikopoulos commented on the sale of its remaining legacy railcar assets, “The 2018 railcar dispositions were completed on an accelerated basis to execute the wind-down of our legacy rail assets. These transactions have resulted in the sale of substantially all of our rail portfolio and will release approximately $140-million in equity capital for deployment.”
The company is expected to reported its fourth-quarter earnings results later this month. The consensus earnings per share estimate is 4 cents.
The company pays its shareholders a quarterly dividend of 1 cent per share, or 4 cents per share on a yearly basis. This translates to an annualized dividend yield of 1 per cent. The company has maintained its dividend at this level since 2016.
Since the beginning of the year, 11 analysts have issued research reports on this small-cap stock with a market capitalization of $1.2-billion, of which 10 analysts have buy recommendations and one analyst has a ‘sell’ recommendation (Nigel D’Souza, the analyst at Veritas Investment Research).
The 11 firms that have provided recent research reports on the stock are as follows in alphabetical order: Barclays, BMO Capital Markets, CIBC Capital Markets, Cormark Securities, National Bank Financial, Raymond James, RBC Capital Markets, Scotia Capital, Stephens, TD Securities and Veritas Investment Research.
Earlier this month, Jeff Fenwick, the analyst from Cormark Securities, increased his target price to $5.25 from $4.50.
Last month, BMO Capital Markets’ Tom MacKinnon raised his target price to $5.50 from $5. While, Phil Hardie, the analyst from Scotia Capital, trimmed his target price by 25 cents to $4.50.
Financial figures are expressed in U.S. dollars.
The consensus earnings per share estimates are 15 cents in 2018, rising to 23 cents in 2019 and 33 cents in 2020.
Earnings forecasts have remained relatively stable, rising slightly. For instance, three months ago, the Street was expecting earnings per share of 13 cents in 2018 and 22 cents in 2019.
Analysts commonly value the stock using a sum-of-the-part (SOTP) valuation method to account for the company’s different business segments.
The one-year consensus target price is $4.65, suggesting there is 17 per cent upside in the share price over the next 12 months. Target prices range widely from a low of $3 (from the analyst at Veritas Investment Research) to a high of $6 (from Vincent Caintic, the analyst at Stephens). Individual target prices are as follows in numerical order: $3, two at $4, two at $4.50, $4.75, two at $5, $5.25, $5.50, and $6.
Insider transaction activity
The most recent trade reported by an insider occurred in November.
Between Nov. 16 and Nov. 22, director Paul Stoyan invested over $175,000 in shares of the company. He purchased a total of 54,000 shares at an average price per share of approximately $3.25, increasing his portfolio’s holdings to 506,340 shares.
Prior to that, on Nov. 15, chairman William Lovatt bought 100,000 shares at a cost per share of $3.274, raising his account’s holdings to 700,000 shares.
The stock has a rather limited trading history since the it just began trading on the Toronto Stock Exchange in September 2016, making technical analysis somewhat of a challenge.
Year-to-date, the share price has increased over 15 per cent. Given the soaring share price, the stock is currently in overbought territory with a relative strength index reading of 78. Generally, a reading at or above 70 indicates an overbought condition.
The stock recently exhibited a bullish “inverse head and shoulders” formation. Consequently, the share price has rallied to nearly $4 from $3.60 over the past few weeks. Also positive, the share price appears to be forming a bullish “golden cross”, which occurs when the 50-day moving average (at $3.59) crosses above the 200-day moving average (at $3.58).
In terms of key resistance and support levels, the share price is approaching major overhead resistance around $4. After that, there is a ceiling of resistance around $4.25, at its record closing high reached in Oct. 2017. Looking at the downside, there is major support around $3.60, which is close to its 50-day moving average (at $3.59) and its 200-day moving average (at $3.58).
This small-cap stock is quite liquid. The three-month historical daily average trading volume is approximately 2.3-million shares.
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.