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On today’s Breakouts report, there are 31 stocks on the positive breakouts list (stocks with positive price momentum), and 19 stocks are on the negative breakouts list (stocks with negative price momentum).

Featured today is a stock that may resurface on the positive breakouts list as there are potential near-term catalysts that could lift the stock price.

In August, it closed at a record high. Since then, the share price has been consolidating, traded sideways, in a range between $25 and $30. Year-to-date, the share price is up 84 per cent.

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The stock has a unanimous buy recommendation from 12 analysts and the average one-year target price implies a 72-per-cent potential gain over the next 12 months.

The company highlighted today is Trulieve Cannabis Corp. (TRUL-CN).

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

The company

Trulieve is incorporated in B.C.., however, its head office and core operations are south of the border.

The company is a leading medical marijuana company in the State of Florida with 63 Trulieve-branded retail stores (dispensaries). Management plans to expand its market dominance beyond the Sunshine State focusing on four additional U.S. states: Massachusetts, California, Connecticut, and Pennsylvania.

Trulieve’s operations are vertically integrated, meaning the company cultivates its own marijuana, distributes, and sells its own products. The company has approximately 1.8-million square feet of cultivation capacity with production capacity of over 74,000 kilograms yearly. To put this in perspective, that area is roughly the size of 31 football fields.

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A monthly progress report’ is posted to the company’s website. The report provides investors with granularity on the company’s operations. In the most recent report, management indicated that the company had a user base of over 383,000 customers as of Sept. 30. Customers, on average, bought products approximately 2.5 times a month, either through its stores or home delivery.

The stock is listed on the Canadian Securities Exchange.

Industry fundamentals

User acceptance and growth. In September, Trulieve added over 17,000 new patients in Florida. On the second-quarter earnings call, chairman and chief executive officer Kim Rivers remarked on evolving customer adoption, “The number of new patients entering the system was on the decline in the spring. This was primarily due to the requirement for new patients to be seen by a doctor for their initial medical marijuana card and doctors not open or available due to COVID. When doctors' offices reopened, we saw numbers increase sharply from a low of 180 patients in one week to a recent weekly high of almost 7,000 new patients. And what’s important to note is that these incredible numbers have extended past the seven weeks of COVID-driven slowdowns with the recent average six-week growth rate of 5,200 patients per week, signaling sustained increased patient adoption rates.”

Legislative environment. We have seen a gradual increase in the number of U.S. states that have legalized marijuana. In the weeks ahead, on Nov. 3, five U.S. states will vote on cannabis legalization – New Jersey (recreational use), Arizona (recreational use), South Dakota (voting on both medical and recreational marijuana proposals), Montana (recreational use) and Mississippi (medical).

This controversial issue was highlighted during the vice-presidential debate when Senator Kamala Harris said, “We will decriminalized marijuana and we will expunge the records of those who have been convicted of marijuana”.

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Investment thesis highlights

  • Market leader. Trulieve is the largest fully licensed medical marijuana company in the State of Florida, The company serves roughly 50 per cent of Florida’s overall volume, according to state’s Department of Health.
  • Geographic expansion. Management’s goal is to be a leading cannabis MSO (multi-state operator), expanding its market dominance beyond the State of Florida.
  • Rising market penetration. Management targets opening another five stores in Florida, bringing its total up to 68 stores, by year-end.
  • Rapid earnings growth. The Street is forecasting revenue to increase 44 per cent next year and adjusted EBITDA to rise 35 per cent.
  • The company is profitable. The company has been profitable since 2017.
  • Strong balance sheet. At the end of the second quarter, the company had a cash balance of $150-million. The company strengthened its financial position, announcing an equity financing on Sept. 16 (issue price of $24.50).
  • Potential near-term catalysts. 1) Future acquisition announcements 2) On Nov. 3, five U.S. States vote on cannabis legalization. 3) A potential rally in marijuana stocks if Joe Biden wins the upcoming U.S. presidential election.

Quarterly earnings

Unlike many other cannabis companies, this one is profitable.

Before the markets opened on Aug. 12, the company reported better-than-expected second-quarter financial results that sent the share price soaring 10 per cent that day.

Trulieve reported record revenue of US$120.8-million, up 109 per cent year-over-year and above the Street’s expectations of US$106-million. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was US$60.5-million, surpassing the consensus estimate of US$45.6-million. The adjusted EBITDA margin was 50 per cent. The average basket size (how much money customers spend per visit or order) was US$125. Same-store sales increased 30 per cent.

Management increased their 2020 guidance, expecting revenue to be between US$465-million and US$485-million, up from its previous guidance of between US$380-million and US$400-million. Management now expects adjusted EBITDA to be between US$205-million and US$225-million, up from its previous guidance of between US$140-million and US$160-million. The higher expectations are attributed to market share gains with growing demand, and higher operating efficiencies.

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The company will be releasing its third-quarter financial results before the markets open on Tues. Nov. 17 and hosting a conference call that morning.

The Street is expecting the company to report revenue of US$131-million, adjusted EBITDA of US$59.6-million, and adjusted earnings per share of 19 US cents.

Dividend policy

The company does not pay its shareholders a dividend.

Analysts' recommendations

This stock with a market capitalization of $3.6-billion is covered by 12 analysts, and all 12 analysts have buy recommendations.

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The firms providing analyst coverage on the company are: ATB Capital Markets, Beacon Securities, Canaccord Genuity, Cantor Fitzgerald, Cormark Securities, Craig-Hallum Capital, Echelon Wealth Partners, Haywood Securities, M Partners, Needham & Co., PI Financial, and Stifel Canada.

Revised recommendations

In September, eight analysts revised their expectations – all higher.

Financial forecasts

This company has robust growth profile. The Street is forecasting revenue of US$491-million in 2020, US$706-million in 2021 and US$933-million in 2022. The consensus adjusted EBITDA estimates are US$233-million in 2020, US$315-million in 2021 and US$479-million in 2022. The consensus adjusted earnings per share estimates are 64 US cents in 2020, US$1.20 in 202, and US$1.96 in 2022.

Earnings expectations have increased in recent months. To illustrate, three months ago, the consensus revenue estimates were US$428-million in 2020, US$564-million in 2021 and US$767-million in 2022. The Street was anticipating adjusted EBITDA to come in at US$183-million in 2020, US$242-million in 2021 and US$395-million in 2022. The adjusted earnings per share estimates were 54 US cents in 2020, 85 US cents in 2021 and US$1.37 in 2022.

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Valuation

According to Bloomberg, the stock is trading at an EV/sales multiple of 3 times the 2021 consensus estimate, an enterprise value-to-EBITDA multiple of 4 times the 2021 consensus estimate, and at a price-to-earnings multiple of 9.1 times the 2021 consensus estimate.

The average one-year target price is $48.57, implying the share price may increase 72 per cent over the next 12 months. Individual target prices are as follows: $35 (from Kenric Tyghe at ATB Capital Markets), $36, two at $40, $42, $47, US$36.25, $50, $51, $55, US$45 and US$60 (from Pablo Zuanic at Cantor Fitzgerald).

Insider transaction activities

Month-to-date, there has not been any trading activity in the public market reported by insiders.

In September, three insiders reported trading activity in the public market – all purchases.

On Sept. 23, director Michael O’Donnell Sr. acquired 20,000 shares at an average price per share of approximately US$17.99. The cost of these purchases exceeded US$359,000, not including trading fees.

On Sept. 23, recently appointed director Susan Thronson invested just under US$50,000 in shares of the company. She bought 2,780 shares at an average cost per share of roughly US$17.84 for an account in which she has control or direction over.

Between Sept. 1-3, chief financial officer Alex D’Amico acquired a total of 1,500 shares at an average cost per share of approximately US$21.27. The cost of these purchases totaled roughly US$31,900, excluding commission charges. On June 1, Mr. D’Amico joined the company as the CFO.

Chart watch

Year-to-date, the share price has rallied over 83 per cent. The share price closed at a record high of $32.98 on Aug. 14, 2020.

The positive price momentum has since paused. Over the past two months, the share price has been consolidating, trading sideways, largely between $25 and $30.

In terms of key resistance and support levels, the share price has an initial ceiling of resistance around $30. After that there is major resistance around $33, near its record closing high. Looking at the downside, there is initial technical support between $22.50 and $23. Failing that, there is strong support around $20.

Wednesday's TSX breakouts

POSITIVE BREAKOUTSOct. 20 close
AW-UN-TA&W Revenue Royalties Income Fund $29.84
ARX-TARC Resources Ltd $6.88
AYA-TAya Gold & Silver Inc. $3.10
BIR-TBirchcliff Energy Ltd $2.06
BEPC-TBrookfield Renewable Corporation $89.94
CAE-TCAE Inc $22.17
GOOS-TCanada Goose Holdings Inc. $47.07
CS-TCapstone Mining Corp $1.59
DOC-TCloudMD Software & Services Inc. $2.93
CTS-TConverge Technology Solutions Corp. $2.62
CURA-CNCuraleaf Holdings Inc. $12.58
DII-B-TDorel Industries Inc $15.46
EFN-TElement Fleet Management Corp. $11.95
ERO-TEro Copper Corp. $21.15
XTC-TExco Technologies Ltd $7.79
GTII-CNGreen Thumb Industries Inc. $21.29
HBM-THudBay Minerals Inc $6.33
IBG-TIBI Group Inc. $6.94
LNR-TLinamar Corp $46.96
MG-TMagna International Inc $71.45
MX-TMethanex Corp $38.24
NGD-TNew Gold Inc $2.85
ONC-TOncolytics Biotech Inc $2.95
PEO-TPeople Corporation $11.75
RICH-TRafflex Financial Group Limited $7.79
RECP-TRecipe Unlimited Corp. $12.51
SLS-TSolaris Resources Inc. $5.20
SRX-TStorm Resources Ltd. $2.30
TCS-TTECSYS Inc. $40.78
TIH-TToromont Industries Ltd $86.53
TCW-TTrican Well Service Ltd $1.27
NEGATIVE BREAKOUTS
AP-UN-TAllied Properties REIT $33.75
GBT-TBMTC Group Inc $8.86
BEI-UN-TBoardwalk Real Estate Investment Trust $26.57
GIB-A-TCGI Group Inc $88.79
ENB-TEnbridge Inc $38.17
FD-TFacedrive Inc. $8.83
IIP-UN-TInterRent REIT $11.92
LGD-TLiberty Gold Corp. $1.88
MFI-TMaple Leaf Foods Inc $24.70
MI-UN-TMinto Apartment REIT $17.19
NGT-TNewmont Corp. $80.28
ONEX-TOnex Corp $58.26
OTEX-TOpen Text Corp $54.26
SJR-B-TShaw Communications Inc $23.07
TF-TTimbercreek Financial Corp. $7.88
TD-TToronto-Dominion Bank $59.24
TMQ-TTrilogy Metals Inc. $2.17
WM-TWallbridge Mining Company Limited $0.91
WPK-TWinpak Ltd. $43.20

Source:  Bloomberg

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.

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

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