On today’s TSX Breakouts report, there are 24 stocks on the positive breakouts list (stocks with positive price momentum), and 33 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a company that is less than 1 per cent away from appearing on the positive breakouts list. The share price is just 40 cents away from setting a new record closing high.
The company will be reporting its second-quarter financial results before the market opens on Aug. 30. For the past several quarters, the company has reported better-than-expected earnings results, which has rocketed the share price higher. If the share price spikes higher after the release of its quarterly results on Thursday, this may represent an opportunity for investors to take some profits off the table. The stock is expensive, trading at a peak multiple and last week, the company filed a preliminary base shelf prospectus, which often signals an equity financing will soon be announced.
The security highlighted today is BRP Inc. (DOO-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
Quebec-based BRP manufactures and markets powersports vehicles and propulsion systems. Products manufactured include roadsters, all-terrain vehicles, snowmobiles, and personal watercrafts with brand names such as Can-Am, Lynx, Ski-Doo, and Sea-Doo. The company has operations across the globe, in Canada, the United States, Mexico, Austria and Finland.
In terms of geographical revenue breakdown, in fiscal 2018 (the company’s fiscal year end is Jan. 31), 51 per cent of its revenue was from the U.S., 17 per cent was from Canada, and the balance was from international regions. As such, there are foreign exchange currency exposures to consider. The company reports its financial results in Canadian dollars. Given the company’s exposure to the U.S. and Mexico, if a new NAFTA agreement is reached this could give the share price a lift.
On Aug. 24, the company filed a preliminary base shelf prospectus with the securities commissions, such an action is often a precursor to a soon to be announced equity financing. Furthermore, given that the share price is trading at a high valuation relative to historical levels, it would not surprise me if the company announced a financing in September.
In recent months, the company has completed several acquisitions in the marine segment. On Aug. 29, the company completed its acquisition of Triton Industries Inc., a manufacturer of pontoon boats. On June 28, the company completed its acquisition of Alumacraft Boat, a manufacturer of aluminum fishing boats.
Before the market opened on May 31, the company reported better-than-expected first-quarter fiscal 2019 financial results. Revenue came in at $1.14-billion, rising 16 per cent year-over-year. Normalized EBITDA (earnings before interest, taxes, depreciation and amortization) came in at $126.6-million, surpassing the consensus estimate of $101-million. Normalized earnings per share was 52 cents, well above the Street’s forecast of 28 cents. Management increased its 2019 earnings outlook given the strong demand for its products. The company now expects normalized EBITDA to realize between 17 per cent and 19 per cent year-over-year growth, up from its previous growth expectations of between 16 per cent and 18 per cent. Management upped its earnings per share outlook for fiscal 2019 to between $2.82 and $2.94, implying between 24 per cent and 30 per cent year-over-year growth. The share price rallied nearly 6 per cent that day on high volume.
The company is scheduled to report its second-quarter fiscal 2019 financial results before the market opens on Aug. 30. There is a high degree of seasonality in the business with the second quarter historically the weakest period. The Street is forecasting EBITDA of $99-million and the consensus earnings per share estimate is 30 cents.
Returning capital to shareholders
In June 2017, management announced the initiation of a quarterly dividend. Less than one year later, management announced a dividend increase, raising its quarterly dividend to 9 cents per share from 8 cents per share. This equates to a yearly dividend of 36 cents per share and an annualized dividend yield of 0.55 per cent.
During the first quarter of fiscal 2019, the company repurchased 1,569,199 shares as part of its share buyback program.
Analysts have mixed recommendations. There are 10 firms providing recent research coverage on the company, of which six analysts have buy recommendations and four analysts have hold recommendations.
The firms providing recent research coverage on BRP are as follows in alphabetical order: Baird, BMO Capital Markets, Canaccord Genuity, CIBC Capital Markets, Desjardins Securities, GMP Securities, Morningstar, National Bank Financial, RBC Capital Markets, and Wells Fargo Securities.
Earlier this month, two analysts revised their target prices –both higher. Craig Kennison, the analyst from Baird, increased his target price to $64 from $53. Cameron Doerksen, the analyst from National Bank Financial, tweaked his target price higher by $1 to $67.
The Street is forecasting EBITDA of $642-million in fiscal 2019, increasing 13 per cent to $726-million in fiscal 2020. The consensus earnings per share estimates are $2.93 in fiscal 2019 and $3.39 in fiscal 2020.
Over the past several months, consensus estimates have increased. To illustrate, three months ago, the Street was forecasting EBITDA of $632-million for fiscal 2019 and $696-million in fiscal 2020. The consensus earnings per share estimates were $2.78 for fiscal 2019 and $3.20 for fiscal 2020.
The stock is trading at a lofty multiple. According to Bloomberg, the stock is trading at a price-to-earnings multiple of 19.4 times the fiscal 2020 consensus estimate, well above the three-year historical average of 13.5 times and at peak levels. On an enterprise value-to-EBITDA basis, the stock is trading at 11.6 times the fiscal 2020 consensus estimate, which is above its three-year historical average multiple of 7.9 times.
The consensus one-year target price is $64.38, implying the stock is fully valued. Individual target prices are as follows in numerical order: $45.50 (the low on the Street is from the analyst at Morningstar), $57, $61, $64, $65, $67, $68, two at $69 and $70 (the high on the Street is from the analyst at BMO Capital Markets).
Insider transaction activity
Year-to-date, six insiders have reported trading activity in the public market – all sales.
Most recently, on July 12, Martin Langelier, senior vice-president – general counsel and public affairs, exercised his options and sold the corresponding number of shares (13,850) at a price per share of $65.25, leaving 49,437 shares in his portfolio.
Prior to that, on June 12, Anne Le Breton, senior vice-president – global human resources and health, safety and security, exercised her options and sold the corresponding number of shares (6,374) at a price per share of $63.26 with just 54 shares remaining in her account.
On June 5, Edward Philip, who sits on the board of directors, divested 32,000 shares at a price per share of $61.83, reducing his account’s holdings to 5,025 shares.
The share price has been in an uptrend since early 2016 and closed at an all-time high of $66.18 on Aug. 9. Year-to-date, the share price has rallied 41 per cent.
Over the past three months, the share price has been consolidating, trading sideways, in a range between $60 and $66.
In terms of key resistance and support levels, there is initial overhead resistance around $66, near its record closing high. The next major resistance level is around $70. Looking at the downside, there is strong technical support around $60. Failing that, there is support around $55.
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.