On today’s TSX Breakouts report, there are 52 stocks on the positive breakouts list (stocks with positive price momentum), and 31 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is an industrial stock that resurfaced on the positive breakouts list after the company reported better-than-expected third-quarter financial results.
This small-cap stock has delivered a large year-to-date gain - rising over 73 per cent. Despite this major move, analysts remain bullish on the stock with five analysts increasing their target prices this month.
With a unanimous buy recommendation, the security I am referring to is GDI Integrated Facility Services Inc. (GDI-T).
A brief outline is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
Quebec-based GDI is a provider of outsourced facility services in North America.
The company’s core business segments are: janitorial services (janitorial Canada and janitorial USA), technical services, and complementary services. The company provides commercial janitorial services to a variety of markets including office buildings, hotels, shopping centres, healthcare facilities, and airports. Janitorial contracts are generally fixed-price contracts with lengths ranging between three-years and five-years. The technical services segment provides repair and servicing of mechanical and electrical systems. The complementary services division offer services related to its janitorial services segment such as manufacturing and distributing janitorial supplies. In 2018, the commercial janitorial services segment represented 70 per cent of total revenue, technical services accounted for 26 per cent of revenue, and complementary services represented 4 per cent of total revenue.
In terms of geographical revenue breakdown, in 2018, 78 per cent of the company’s revenue was from Canada with the balance, 22 per cent, from the United States.
‘Steady as she goes’ characterizes this company’s revenue growth. Management’s core objective is to achieve a combination of acquisition and organic (increase customer base and increase services provided to existing customers) growth. The company has delivered consistent top line growth reporting revenue of $873-million in 2016, $970-million in 2017, and $1.1-billion in 2018. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) has grown from $40-million in 2016 (adjusted EBITDA margin 4.6 per cent) to $50-million in 2017 (adjusted EBITDA margin 5.2 per cent), and $60-million in 2018 (adjusted EBITDA margin 5.4 per cent).
After the market closed on Nov. 7, the company reported third-quarter financial results that exceeded expectations and sent the share price soaring nearly 4 per cent the following trading day on unusually high volume. On Nov. 8, over 515,000 shares traded, well above its three-month historical daily average trading volume of approximately 22,000 shares.
The company reported revenue of $322.8-million, up 14.6 per cent year-over year, and ahead of the consensus estimate of $316.8-million. The increase in revenue was attributed to both organic, or internal, growth of 4.7 per cent, and acquisition growth representing over 9 per cent of the growth. During the quarter, the company completed two acquisitions, one in the janitorial USA segment and the other in the technical services segment. Post the quarter, on Oct. 1, the company acquired its sixth acquisition so far in 2019, Ontario-based Airco Ltd., which will strengthen its technical services division. Adjusted EBITDA totaled $20.2-million, up 22.8 per cent year-over-year and above the Street’s forecast of $19.9-million. The adjusted EBITDA margin was 6.3 per cent.
On the earnings call, the president and chief executive officer Claude Bigras remarked on company’s acquisition opportunities and company’s solid balance sheet, “The pipeline is strong and our total debt-to-adjusted EBITDA ratio is still below 2.5 times.”
Management is focused on growth. Consequently, the company currently does not pay its shareholders a dividend.
There are six analysts actively covering this small-cap stock with a market capitalization of $683-million, and all six analysts have buy recommendations.
The firms providing recent research coverage on the company are as follows in alphabetical order: CIBC World Markets, Cormark Securities, Desjardins Securities, Industrial Alliance Securities, National Bank Financial and TD Securities.
Earlier this month, five analysts raised their target prices.
- Cormark’s Maggie MacDougall raised her target by $2.50 to $37.50.
- Frederic Tremblay lifted his target to $37 from $33.
- Industrial Alliance Securities’ Neil Linsdell upgraded his recommendation to a “buy” from a “hold” and increased his target to $34 (the low on the Street) from $29.
- CIBC’s Scott Fromson upgraded his recommendation to “outperform” from a “neutral” with a target price of $35, up by $4.
- National Bank’s Zachary Evershed took his target price up to $36 from $34.
The Street is forecasting revenue of $1.27-billion in 2019 and $1.34-billion in 2020. The consensus EBITDA estimate is $74.9-million in 2019, rising to $82-million in 2020. The consensus earnings per share estimate is 61 cents in 2019, and expected to jump 85 per cent to $1.13 in 2020.
In recent months, earnings estimates have been relatively stable. To illustrate, three months ago, the Street was forecasting EBITDA of $74.4-million for 2019 and $80.9-million for 2020.
According to Bloomberg, shares of GDI are trading at an enterprise value-to-EBITDA multiple of 10.7 times the 2020 consensus estimate, above its three-year historical average of 8.5 times.
The average one-year target price is $36.25, suggesting there is 13 per cent upside potential over the next 12 months. Individual target prices are as follows in numerical order: $34, $35, $36, $37, $37.50 and $38.
There are no directly comparable companies that trade on the Toronto Stock Exchange. However, a somewhat related sector peer is K-Bro Linen Inc. (KBL-T). K-Bro provides laundry services for hotels, healthcare providers, hospitals and retirement homes, and its shares are trading at an EV/EBITDA multiple of 11.1 times the 2020 consensus estimate.
Insider transaction activities
Year-to-date, there has not been any trading activity in the public market reported by insiders.
Year-to-date, the stock has been a stellar performer, soaring nearly 74 per cent.
The share price has rallied 7 per cent over the past three trading sessions after the company reported strong third-quarter financial results. However, investors don’t need to chase the stock. On Tuesday, for instance, the share price traded as low as $31.58 before closing at $32.09. In the near-term, the stock price is likely to pause around the low $30 level.
Looking at key overhead resistance and downside support levels, there is a ceiling of resistance around $35. Looking at the downside, there is initial technical support around $30, near its 50-day moving average (at $29.13). Failing that, there is downside support around $26.50, close to its 200-day moving average (at $26.42).
This small-cap stock is thinly traded, which can increase price volatility.
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.