On today’s TSX Breakouts report, there are 28 stocks on the positive breakouts list (stocks with positive price momentum), and nine securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a security that appeared on the negative breakouts list on Monday.
Year-to-date, the stock has delivered solid gains to its shareholders, rising 18 per cent. However, since Aug. 1, the stock price has dropped nearly 8 per cent after management reduced its earnings outlook. Given the pullback in the share price, the stock neared oversold territory last week with a relative strength reading of 35. Generally, an RSI reading at or below 30 reflects an oversold condition. Modest price returns are anticipated with the Street expecting the share price to recover its 8 per cent downdraft over the next year. The stock offers its investors an attractive monthly dividend, equating to a 5 per cent yield.
The security I am referring to is Sienna Senior Living Inc. (SIA-T).
A brief outline is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
Ontario-based Sienna is one of Canada’s largest owners and operators of seniors housing with a portfolio of 87 LTC (long-term care) and retirement homes that are located primarily in Ontario (70 sites) and in B.C. (17 locations). In the second-quarter, the NOI (net operating income) breakdown was 56 per cent funded long-term care, which is paid by the government, and 44 per cent retirement or private-pay care, where rates are determined by the market.
Sienna operates in an industry with attractive features such as growing demand with aging demographics and high barriers to entry as long-term care homes in Ontario are licensed by the Ministry of Health and Long-Term Care. Sienna has a source of stable cash flows through its provincial government funding.
After the market closed on Aug. 14, the company reported its second quarter financial results. Operating funds from operations (OFFO) came in at 36 cents per share, a penny ahead of the consensus estimate. The retirement same-property portfolio’s occupancy averaged 88.4 per cent, down from 91.6 per cent reported during the same period last year. Management attributed this decline to three main factors 1) residents leaving a property that was acquired last year 2) oversupply in the Ottawa region 3) disruptions associated with renovations at some of its properties. Retirement same-property NOI increased 1.6 per cent year-over-year. The LTC (long-term care) portfolio saw its average occupancy rate hold steady year-over-year at 98.3 per cent. LTC same-property NOI increased 1.2 per cent. Adjusted funds from operations (AFFO) per share came in at 37 cents. The company’s balance sheet improved with its debt-to-gross book value declining to 46.6 per cent from 47.8 per cent reported last quarter and 49.4 per cent reported last year.
On the earnings call, the president and chief executive officer Lois Cormack reduced management’s earnings outlook, “Looking ahead, we expect the long-term care portfolio to deliver growth consistent with 2018. In the retirement portfolio, we expect occupancy for the next one to two quarters to be comparable to where we ended Q2 [second quarter], resulting in an estimated [same-property NOI] year-over-year growth range from flat to low single-digit for 2019.” Last quarter, management guided to “moderate single-digit growth” for its retirement portfolio. The share price retreated 1 per cent the following trading day.
Sienna pays its shareholders a monthly dividend of 7.8 cents per share, or over 93 cents per share on a yearly basis, translating to a current annualized yield of 5 per cent.
During the first six months of 2019, the AFFO payout ratio (based on basic AFFO) stood at 63.7 per cent, suggesting the dividend is sustainable with room to expand. Last month, the company announced a 2 per cent dividend increase, raising its monthly dividend to its current level of 7.8 cents per share from 7.65 cents per share.
This small-cap health care stock with a market capitalization of $1.2-billion is actively covered by 10 analysts, of which five analysts have buy recommendations and five analysts have neutral recommendations.
The firms providing recent research coverage on the company are as follows in alphabetical order: BMO Nesbitt Burns, Canaccord Genuity, CIBC World Markets, Echelon Wealth Partners, Laurentian Bank Securities, National Bank Securities, Raymond James, RBC Dominion Securities, Scotiabank and TD Securities.
In August, four analysts revised their expectations. Canaccord’s Brendon Abrams lifted his target price by $1 to $21. National Bank’s Tal Woolley tweaked his target price higher to $22 from $21. Yashwant Sankpal, an analyst at Laurentian Bank Securities, reduced his target price to $18.50 from $19. Echelon Wealth’s Frederic Blondeau downgraded the stock to a “hold” recommendation from a “buy” recommendation but left his target price unchanged at $19.50.
The Street is forecasting 5 per cent earnings growth for the company. The consensus FFO per share estimates are $1.37 in 2019, and $1.44 in 2020. The consensus AFFO per share estimates are $1.43 in 2019 and $1.50 in 2020.
Earnings forecasts have been relatively stable. For instance, three months ago, the consensus FFO per share estimates for 2019 and 2020 were $1.38 and $1.45, respectively. The Street was forecasting AFFO per share to come in at $1.44 in 2019 and $1.50 in 2020.
On a price-to-AFFO basis, the stock is trading at a multiple of 12.5 times the 2020 consensus estimate. On a price-to-FFO basis, the stock is trading at 12.9 times the 2019 consensus estimate, which is above its three-year historical average forward multiple of 11.8 times.
The consensus one-year target price is $20.25, suggesting there is 8 per cent upside potential in the share price over the next 12 months, including the 5 per cent yield, this equates to a potential total return of 13 per cent. Individual target prices are as follows in numerical order: $18.50 (the low on the Street is from Laurentian’s Yashwant Sankpal), $19.50, four at $20, $20.50, two at $21, and one at $22 (the high on the Street is from National Bank’s Tal Woolley).
Insider transaction activities
Quarter-to-date, there have not been any transactions in the public market reported by insiders.
During the second quarter, one insider reported trades in the public market. Between May 15 and May 22, Paula Jourdain Coleman, who sits on the board of directors, sold a total of 25,800 shares at an average price per share of $18.94, leaving 243,200 shares in her account. Gross proceeds from the sales totaled over $488,000.
Year-to-date, the stock has delivered solid gains to its shareholders, rising 18 per cent. However, the stock price is down nearly 8 per cent from the close on Aug. 1. The share price appears to be stabilizing around the mid-$18 level.
Looking at key technical resistance and support levels, there is strong technical support around $18, close to its 200-day moving average (at $17.93). On a recovery, the stock price has initial overhead resistance around $19.50, close to its 50-day moving average (at $19.33). There is major overhead resistance around $20, close to its record closing high.
This small-cap health care stock has reasonable liquidity. The three-month historical daily average trading volume is approximately 250,000 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.