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Inside the Market Wednesday’s TSX breakouts: A defensive dividend stock that is charging higher with a 20% total return expected

On today’s TSX Breakouts report, there are 34 stocks on the positive breakouts list (stocks with positive price momentum), and 37 stocks are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a stock that appears on the positive breakouts list. During the current stock market volatility, this is a stock that has provided investors with stability to their portfolios. Year-to-date, the share price has been steadily climbing higher and is up 21 per cent. With a current yield of 3.2 per cent, the company has a conservative payout ratio, suggesting its quarterly dividend is sustainable with room to grow.

There are seven buy recommendations on the stock with an anticipated total return (including the dividend yield) of over 20 per cent.

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Discussed below is Boralex Inc. (BLX-T).

A brief outline is provided below that may serve as a springboard for further fundamental research.

The company

Quebec-based Boralex develops and operates renewable energy power generating facilities (wind, hydroelectric, thermal, and solar) in Canada, the U.S., and in France with the majority of company’s production stemming from wind power.

In 2018, of the 1,942 MW (megawatt) installed capacity, 89 per cent was from the wind segment, hydroelectric accounted for 8 per cent of installed capacity, thermal 2 per cent and solar 1 per cent. Furthermore, 98 per cent of its installed capacity is covered by long-term, fixed-price contracts with an average contract length of 13 years providing the company with strong earnings visibility.

Before the market opened on Aug. 8, the company reported solid second-quarter earnings results. EBITDA (earnings before interest, taxes, depreciation and amortization) came in at $103-million, up over 50 per cent year-over-year, and surpassing the consensus estimate of $98-million. In terms of its development pipeline, the company noted that it was awarded a wind power contract in France totaling 68 MW in April, and will be moving forward with a 90 MW wind farm project in Scotland. The share price rallied 2 per cent that day.

Looking out, at the investor day held in June, management highlighted its operations objectives for the years ahead. In 2020, management is targeting delivering EBITDA of between $480-million and $500-million with 2,085 MW (megawatt) of installed capacity at the end of 2020. By 2023, management is calling for installed capacity to exceed 2,800 MW. AFFO (adjusted funds from operations) is anticipated to be between $140-million and $150-million, representing a compound annual growth rate of approximately 20 per cent between 2018 and 2023.

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Dividend policy

The company pays its shareholders a quarterly dividend of 16.5 cents per share, or 66 cents per share yearly. This equates to a current annualized dividend yield of 3.2 per cent.

In 2018, the company increased its dividend twice.

Management targets a conservative AFFO payout ratio of between 40 per cent and 60 per cent.

Financial forecasts

The consensus EBITDA estimates are $486-million in 2019 and $491-million in 2020.

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Earnings forecasts for this year have increased but declined slightly for next year. For instance, three months ago, the Street was anticipating EBITDA to be $480-million in 2019 and $493-million in 2020.

Analysts’ recommendations

This small-cap utilities stock with a market capitalization of $1.8-billion is well covered by the Street. The stock has seven buy recommendations and one ‘sector perform’ recommendation (from Nelson Ng, the analyst at RBC Dominion Securities). Analyst coverage is provided by the following firms in alphabetical order: BMO Nesbitt Burns, CIBC World Markets, Desjardins Securities, Industrial Alliance Securities, National Bank Financial, Raymond James, RBC Dominion Securities, and TD Securities.

Revised recommendations

In July, three analysts revised their expectations – all higher. TD’s Sean Steuart lifted his target price to $24 from $22. Raymond James’ David Quezada bumped his target price to $26 from $25. Industrial Alliance’s Jeremy Rosenfield tweaked his target higher by $1 to $24.

Valuation

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According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 10.5 times the 2020 consensus estimate, marginally above the three-year historical average forward multiple of 10.1 times but below its peak multiple of approximately 11.6 times during this time period.

The average one-year target price is $23.91, suggesting the stock price has 17 per cent upside potential over the next 12 months (a potential total return of over 20 per cent if you include the 3 per cent yield) .

Individual target prices are as follows in numerical order: $20 (the low on the Street is from Mr. Ng), $23, three at $24, $25, $25.50 and $26 (the high on the Street is from Mr. Quezada).

Insider transaction activity

Year-to-date, there has not been any buying or selling activity in the public market reported by insiders.

Chart watch

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Year-to-date, the share price has been steadily rising, rallying 21 per cent. This is ahead of the S&P/TSX composite index, which is up 14.2 per cent but slightly below the S&P/TSX utilities sector index that is up 23.9 per cent.

Looking at key resistance and support levels, there is major resistance around $25, close to its record closing high of $24.78 reached on Jan. 19, 2018. Looking at the downside, there is initial technical support around $20, near its 50-day moving average (at $19.76). Failing that, there is strong technical support around $16.

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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Positive BreakoutsAug. 13 close
AQN-TAlgonquin Power & Utilities Corp $17.18
AP-UN-TAllied Properties REIT $51.05
AIF-TAltus Group Ltd $38.16
AX-UN-TArtis Real Estate Investment Trust $12.24
BLDP-TBallard Power Systems Inc $6.19
BLX-TBoralex Inc $20.38
BAM-A-TBrookfield Asset Management Inc $67.56
CAR-UN-TCanadian Apartment Properties REIT $51.06
CDAY-TCeridian HCM Holding Inc. $70.90
CWEB-TCharlotte's Web Holdings Inc. $28.80
CGX-TCineplex Inc $25.79
CRH-TCRH Medical Corp $4.34
DIR-UN-TDream Industrial REIT $12.34
D-UN-TDream Office Real Estate Investment Trust $26.09
EOG-TEco Atlantic Oil & Gas Ltd. $1.86
EMA-TEmera Inc $56.15
EMP-A-TEmpire Co Ltd $36.43
FTS-TFortis Inc $54.00
WN-TGeorge Weston Ltd $107.25
H-THydro One Ltd. $23.87
IAG-TiA Financial Corporation Inc. $55.01
GUD-TKnight Therapeutics Inc $7.84
L-TLoblaw Cos Ltd $71.24
MEQ-TMainstreet Equity Corp $63.00
MDI-TMajor Drilling Group International Inc $4.94
MRU-TMetro Inc $53.46
MI-UN-TMinto Apartment REIT $21.18
NVU-UN-TNorthview Apartment REIT $28.48
QTRH-TQuarterhill Inc. $1.79
REAL-TReal Matters Inc. $9.18
SHOP-TShopify Inc $488.49
SVM-TSilvercorp Metals Inc $5.03
ZZZ-TSleep Country Canada $21.26
TRZ-TTransat AT Inc $16.84
Negative Breakouts
ABT-TAbsolute Software Corp $7.33
AKU-U-TAkumin Inc. $3.11
ALS-TAltius Minerals Corp $11.81
ATA-TATS Automation Tooling Systems Inc $19.60
AAAA-TAuralite Investments Inc. $0.81
BLN-TBlackline Safety Corp. $5.50
CCO-TCameco Corp $11.22
CSW-A-TCorby Spirit and Wine Ltd $17.50
DRT-TDIRTT Environmental Solutions Ltd. $6.74
EFX-TEnerflex Ltd $13.67
ESI-TEnsign Energy Services Inc $3.07
GSV-TGold Standard Ventures Corp. $1.22
GSC-TGolden Star Resources Ltd. $3.91
HWO-THigh Arctic Energy Services Inc $2.68
IBG-TIBI Group Inc. $4.89
JE-TJust Energy Group Inc $4.10
KML-TKinder Morgan Canada Ltd. $10.77
LUC-TLucara Diamond Corp $1.23
DR-TMedical Facilities Corp $7.81
TPX-B-TMolson Coors Canada Inc. $71.03
NVA-TNuVista Energy Ltd $1.81
PSI-TPason Systems Inc $16.62
PIPE-TPipestone Energy Corp. $1.06
PD-TPrecision Drilling Corp $1.58
PLI-TProMetic Life Sciences Inc $9.01
RECP-TRecipe Unlimited Corp. $25.05
RME-TRocky Mountain Dealerships Inc $6.81
RUS-TRussel Metals Inc $18.70
SES-TSecure Energy Services Inc $6.40
SOX-TStuart Olson Inc $2.90
SOY-TSunOpta Inc. $2.75
TFII-TTFI International Inc. $37.63
TWM-TTidewater Midstream and Infrastructure Ltd. $1.13
TOT-TTotal Energy Services Inc $6.09
TCN-TTricon Capital Group Inc $9.73
TSU-TTrisura Group Ltd. $28.64
TWC-TTWC Enterprises Ltd. $13.20

Source: Bloomberg

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