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analysis

On today’s Breakouts report, there are 15 stocks on the positive breakouts list (stocks with positive price momentum), and 30 securities are on the negative breakouts list (stocks with negative price momentum). Multiple utilities stocks are rising and appear on the positive breakouts list, while gold stocks continue to dominate the negative breakouts list.

Discussed today is one of the utilities stocks on the positive breakouts list - Northland Power Inc. (NPI-T). The stock is trading at a reasonable valuation with room for multiple expansion. It has 13 buy recommendations and two neutral recommendations, and a forecast total return of over 16 per cent. The company provides stable monthly dividends to its shareholders and has a current dividend yield of 3 per cent with a conservative payout ratio.

A brief outline on Northland is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.

The company

Toronto-based Northland Power is an international power producer. In 2021, earnings from its offshore wind facilities segment accounted for approximately 59 per cent of total adjusted earnings before interest, taxes, depreciation and amortization (EBITDA).

In terms of its total operating capacity breakdown: offshore wind accounts for 39 per cent of gross production capacity, onshore wind represents 28 per cent, natural gas 25 per cent and solar accounts for 8 per cent.

Investment thesis

  • Renewables energy play.
  • Leading offshore wind operator. Northland is the 4th largest offshore operator worldwide based on operating capacity.
  • Successfully advancing the Hai Long project in Taiwan with 1 gigawatt of capacity. Financial close expected in the second half of 2022, construction is planned for 2023 and commercialization is anticipated in late 2026.
  • Growth. Management targets doubling its production capacity to 6.5 GW by 2027 from 3.24 GW of gross production capacity in 2021. The company has an attractive growth pipeline from various projects.
  • Earnings visibility. Majority of revenue is under long-term contracts.

Reasonable valuation. Trading in-line with its five-year historical average.

Reliable dividend. Unchanged since 2018 and maintained during the pandemic.

Quarterly earnings

After the market closed on May 10, the company reported better-than-expected first-quarter financial results. Adjusted EBITDA came in at $420-million, up 17 per cent year-over-year, beating the Street’s expectations of $367-million. Free cash flow per share came in at 77 cents. The share price rallied 1.5 per cent the following day.

Management reiterated its guidance. For 2022, management expects adjusted EBITDA to be between $1.15-billion and $1.25-billion. Free cash flow per share is expected to be between $1.20 and $1.40. Adjusted free cash flow per share is forecast to be between $1.65 and $1.85.

The company will be releasing its second quarter financial results after the market closes on Thurs. Aug. 11. The consensus EBITDA estimate is $230-million.

Dividend policy

Northland pays its shareholders a monthly dividend of 10 cents per share or $1.20 per share yearly, equating to a current annualized dividend yield of 3 per cent. The dividend has been maintained at this level since the beginning of 2018.

The company has a predictable revenue stream due to its long-term power contracts. As such, the dividend appears to be well supported. In 2021, the adjusted free cash flow payout ratio was 67 per cent.

Analysts’ recommendations

There are 15 analysts that cover this mid-cap stock, of which 13 analysts have buy recommendations and two analysts have neutral recommendations.

The firms providing research coverage on the company are as follows in alphabetical order: ARC Independent Research, ATB Capital Markets, BMO Nesbitt Burns, CIBC World Markets, Credit Suisse, Desjardins Securities, iA Capital Markets, Morningstar, National Bank Financial, Peters & Co., Raymond James, RBC Dominion Securities, Scotia Capital, TD Securities, and Tudor Pickering.

Revised recommendations

Target prices have remained relatively stable. Month-to-date, two analysts have revised their target prices.

  • Desjardins’ Brent Stadler raised his target price by $1 to $50.
  • iA Capital Markets’ Naji Baydoun reduced his target price to $44 from $47.

Financial forecasts

The consensus EBITDA estimate is $1.233-billion in 2022, up from adjusted EBITDA of $1.137-billion reported in 2021, and forecast to rise to $1.285-billion in 2023.

Over the past several months, the consensus EBITDA estimates have modestly increased. Four months ago, the Street was anticipating EBITDA of $1.218-billion in 2022 and $1.268-billion in 2023.

Valuation

According to Bloomberg, shares of Northland are trading at an enterprise value-to-EBITDA (EV/EBITDA) multiple of 12.7 times the 2023 consensus estimate, relatively in-line with its five-year historical average multiple of 12.1 times, well below its peak multiple of approximately 16 times during this time period.

The average one-year target price is $45.68, implying a potential price return of 13 per cent and a potential total return, which includes the 3 per cent dividend yield, of over 16 per cent. Individual target prices are: $37 (from Morningstar’s Brett Castelli), $43, five at $44, $45, $46, $46.25, $47, three at $50 and $51 (from Credit Suisse’s Andrew Kuske).

Insider transaction activity

Since the beginning of the second quarter, there has only been one small transaction in the public market reported by an insider.

On June 30, Eckhardt Ruemmler, who sits on the board of directors, purchased 186 shares in the public market.

Chart watch

Year-to-date, the share price has rallied 6 per cent year-to-date, outperforming the S&P/TSX Utilities Index and S&P/TSX Composite Index, which are up 0.5 per cent and down 12.4 per cent, respectively.

Looking at key resistance and support levels, the stock price has an initial ceiling of resistance around $44, close to its 52-week high (closed at $43.78 on July 30, 2021). After that, there is major overhead resistance around $50. Should the share price retreat, there is initial support around $38, close to its 50-day moving average at $38.59 and its 200-day moving average at $38.76. Failing that, there is strong technical support around $35, near its 2022 low (closed at $34.91 on Feb. 3).

ESG Risk Rating

According to risk provider Sustainalytics, the company has an ESG risk score of 31.5 as of June 30, 2022. A risk score between 30 and 40 reflects a “high risk” rating.

POSITIVE BREAKOUTS18-Jul
CPX-TCapital Power Corp46.65
CVG-TClairvest Group Inc. 69
DHT-UN-TDRI Healthcare Trust8.67
FRX-TFennec Pharmaceuticals Inc. 8.74
IBG-TIBI Group Inc. 19.26
INE-TInnergex Renewable Energy Inc18.56
MDNA-TMedicenna Therapeutics Corp.1.95
MTY-TMTY Food Group Inc55.48
NPI-TNorthland Power Inc40.27
PIF-TPolaris Infrastructure Inc.21.69
QIPT-XQuipt Home Medical Corp.7.02
TA-TTransAlta Corp15.1
UNS-TUni-Select Inc35.21
VMD-TViemed Healthcare Inc. 9.54
WBR-TWaterloo Brewing Ltd.5.04
NEGATIVE BREAKOUTS
AEM-TAgnico Eagle Mines Ltd55.43
USA-TAmericas Gold and Silver Corp0.67
AR-TArgonaut Gold Inc0.41
CAS-TCascades Inc9.14
ECO-TEcoSynthetix Inc4.05
EDV-TEndeavour Mining Corp. 24.82
FAF-TFire & Flower Holdings Corp. 2.05
FOOD-TGoodfood Market Corp. 1.29
GRN-TGreenlane Renewables Inc. 0.62
HLS-THLS Therapeutics Inc. 11.4
III-TImperial Metals Corp2.4
IMV-TIMV Inc. 0.73
MND-TMandalay Resources Corp2.22
MKP-TMCAN Mortgage Corp15.8
MUX-TMcEwen Mining Inc. 0.46
MRD-TMelcor Developments Ltd11.4
MTA-XMetalla Royalty & Streaming Limited5.78
MRC-TMorguard Corp108.1
MRG-UN-TMorguard North American Residential REIT16.07
NFG-XNew Found Gold Corp. 5.02
NGD-TNew Gold Inc0.91
NGT-TNewmont Corp. 71.21
PYR-TPyroGenesis Canada Inc.1.81
RUP-XRupert Resources Ltd. 3.87
SLF-TSun Life Financial Inc56.29
TRZ-TTransat AT Inc3.15
TFPM-TTriple Flag Precious Metals Corp.14.58
WDO-TWesdome Gold Mines Ltd. 9.31
WEF-TWestern Forest Products Inc1.4
WPM-TWheaton Precious Metals Corp. 43.94

Source: Bloomberg and The Globe and Mail

This 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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