On today’s Breakouts report, there are 40 stocks on the positive breakouts list (stocks with positive price momentum), and 10 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a stock that is on the positive breakouts list - Element Fleet Management Corp. (EFN-T). The share price is less than 3 per cent away from closing at a new record high.
A brief outline on Element is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
The company
Toronto-based Element Fleet Management is a leading fleet management company with operations in North America, Mexico, Australia and New Zealand. Element has approximately 1.5 million fleet vehicles under management.
The company has a diversified client base serving blue-chip customers across different industries and geographies. The company has a high client retention rate.
Quarterly earnings and outlook
After the market closed on Nov. 6, the company reported better-than-expected third-quarter financial results that sent the share price up 1 per cent the following day.
Net revenue was $333.8-million, topping the consensus estimate of $316-million. Adjusted earnings per share came in at 35 cents, above the Street’s forecast of 31 cents per share. Free cash flow per share was 42 cents. At quarter-end, the company’s backlog stood at $2.5-billion, down from $2.6-billion as of June 30.
For 2024, management is guiding to net revenue of between $1.365-billion and $1.39-billion and adjusted earnings per share of between $1.41 and $1.46, representing high single-digit to low double-digit growth in adjusted earnings per share. Free cash flow per share is expected to be between $1.75 and $1.80.
On the earnings call, the president and chief executive officer Laura Dottori-Attanasio highlighted management’s key objectives, “Our confidence in our growth trajectory is further bolstered by the recent prioritization of opportunities to scale our business and make targeted investments that will drive our future performance. We announced three strategic initiatives that we have underway. They are centralizing accountability for our U.S. and Canadian leasing operations, establishing a strategic sourcing presence in Asia and advancing digitization and automation, all of which will unlock future growth for us.”
Dividend policy
Earlier this month, management announced a 20-per-cent dividend hike, lifting its quarterly dividend to 12 cents per share from 10 cents. This equates to a current annualized dividend yield of 2.3 per cent.
Management targets a payout ratio of between 25 per cent and 35 per cent of the company’s last 12 months free cash flow per share.
Analysts’ recommendations
This mid-cap stock with a market capitalization of $8.3-billion is actively covered by eight analysts, of which seven analysts have buy-equivalent recommendations and one analyst (Scotiabank’s Phil Hardie) has a “sector perform” recommendation.
The firms providing recent analyst coverage on the company are: BMO Nesbitt Burns, CIBC World Markets, National Bank Financial, Raymond James, RBC Dominion Securities, Scotiabank, TD Securities and Veritas Investment Research.
Revised recommendations
After the company released its third-quarter financial results, two analysts made minor revisions to their target prices.
- Raymond James’ Stephen Boland to $26 from $27.
- Veritas’ Shalabh Garg tweaked to $23 from $22.50.
Financial forecasts
The Street is forecasting revenue of $1.29-billion in 2023, up from $1.13-million reported in 2022, and $1.39-billion in 2024. The consensus earnings per share estimates are $1.29 in 2023, up from $1.10 reported in 2022, and $1.44 in 2024.
Valuation
According to Bloomberg, the stock is trading at a price-to-earnings multiple of 14.8 times the fiscal 2024 consensus estimate, above its three-year historical average multiple of 13.7 times but below its peak multiple of roughly 17 times during this time period.
The average one-year target price is $25.63, implying the share price has 21 per cent upside potential over the next 12 months. Expectations vary widely from a potential return of 4 per cent to a potential gain of 46 per cent. Individual target prices are: $22 (from Scotiabank’s Phil Hardie), $23, two at $24, $25, $26, $30 and $31 (from National Bank’s Jaeme Gloyn).
Insider transaction activity
Quarter-to-date, one insider has reported trading activity in the public market.
On Nov. 8, executive vice-president and chief commercial officer David Madrigal exercised his options, receiving 8,333 shares at a cost per share of $11.14, and sold 8,333 shares at a price per share of $20.14 with 12,951 shares remaining in this particular account. Net proceeds totaled approximately $75,000, not including any associated transaction fees.
Chart watch
The share price is just 55 cents, or 2.5 per cent, away from closing at a new record high.
Year-to-date, the share price has rallied 15 per cent, outperforming the S&P/TSX composite index, which is up 4.4 per cent.
In terms of key technical resistance and support levels, the share price is approaching a ceiling of resistance around $22, near its record closing high of $21.75 set on Aug. 8, 2023. After that, there is overhead resistance around $24. Looking at the downside, there is strong technical support around $20, close to its 50-day moving average (at $19.66) and 200-day moving average (at $19.60). Failing that, there is support between $17 and $17.50.
ESG Risk Rating
According to Sustainalytics, Element has an environmental, social and corporate governance (ESG) risk rating of 20.2 as of Aug. 25. A rating of between 20 and 30 reflects a “medium” risk.
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.
This report should not be considered an investment recommendation
Jennifer Dowty