On today’s TSX Breakouts report, there are 26 stocks on the positive breakouts list (stocks with positive price momentum), and 41 stocks are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a stock that is on the positive breakouts list with its share price closing at a record high on Tuesday. Management is committed to delivering annual earnings per share growth of 10 per cent or higher as well as steady dividend growth.
In addition to solid and improving financials, the stock has a potential near-term catalyst – a U.S. acquisition announcement.
With eight buy recommendations, the company highlighted below is iA Financial Corporation Inc. (IAG-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 iA Financial Corporation is a leading insurance and financial services company in Canada with operations across North America. The company’s five main operating segments include individual insurance, individual wealth management, group insurance, group savings and retirement, and its U.S. operations.
On Aug. 1, the company reported solid second-quarter financial results with strength realized across all five of its business segments. Core earnings per share came in at $1.61, above management’s guidance of between $1.45 and $1.55 and ahead of the consensus estimate of $1.47. The solvency ratio improved to 127 per cent, exceeding management’s target of between 110 per cent and 116 per cent. Also positive, the leverage ratio declined to 18.1 per cent. As at June 30, the book value per share was $49.70, up 8 per cent year-over-year. Return on equity was 12.6 per cent. Management has been active in its share buyback program, repurchasing 3.6 million shares between Nov. 12, 2018 and June 30, 2019.
On the earnings call, chief executive officer Denis Ricard stressed the company’s strong balance sheet, which will allow the company to pursue acquisition opportunities with a focus on strengthening its two U.S. divisions, “Our capital position is very, very strong at the moment. In fact it is better than ever. What makes our position even more interesting is that we now generate capital organically more than ever. Also our people have worked very hard to reduce our sensitivity to macroeconomic variations and our solvency ratio now has a low sensitivity to such factors. Moreover, our balance sheet is very flexible with a low debt ratio. So what do we plan to do with this capital. The priority is clear. We want to use this excess capital for acquisitions. This is dry powder and as mentioned earlier, although we are looking for different opportunities, we have great interest in the U.S. market.” He added, “And why the U.S.? Well, I already mentioned that the growth potential is particularly appealing in the U.S. Let's take a step back and remind ourselves that we entered the U.S. market, a little more than a decade ago, and it is quite impressive to see how we've been able to grow our individual insurance division internally and through acquisitions during that period of time. About 15 months ago, following an acquisition, we entered the market of car dealer insurance services in the U.S., and today, we are very pleased with the performance of both divisions. They have a strong growth momentum for both top and bottom lines, which is why the U.S. market is our main area of focus for the next acquisitions.”
Management targets delivering 10 per cent or more annual earnings per share growth, of which 6 per cent is organic, or internal, growth, 3 per cent is from improved profitability, 2 per cent is acquisition growth, and 1 per cent is from distribution. For 2019, management expects to report EPS of between $5.75 and $6.15 with a return on equity between 11 per cent and 12.5 per cent.
The company will be reporting its third-quarter earnings results before the market opens on Wednesday, Nov. 6 and will be hosting an earnings call later that day at 2 p.m. (ET).
The consensus earnings per share estimate is $1.57, and management has guided to EPS of between $1.55 and $1.65.
According to Bloomberg, the Caisse de dépôt et placement du Québec has an ownership position of over 9 per cent.
Management is committed to its dividend policy. Management aims to deliver consistent dividend growth with the goal of announcing annual dividend increases in the third-quarter of each year. The company has announced seven dividend increases over the past five years. The most recent dividend hike was an 8-per-cent increase announced in May.
The company pays its shareholders a quarterly dividend of 45 cents per share, or $1.80 per share on a yearly basis. This equates to a current annualized dividend yield of 2.9 per cent.
For 2019, management targets a payout ratio ranging between 25 per cent and 35 per cent in 2019. In 2018, the payout ratio was 28 per cent.
This mid-cap stock with a market capitalization of $6.5-billion is actively covered by nine analysts, of which eight analysts have buy recommendations and one analyst (Gabriel Dechaine, the analyst at National Bank Financial) has a “sector perform” recommendation. Mr. Dechaine has maintained his call on the stock since January 2018.
The nine firms providing recent research coverage on the company are as follows in alphabetical order: BMO Nesbitt Burns, Canaccord Genuity, CIBC World Markets, Cormark Securities, Desjardins Securities, National Bank Financial, RBC Dominion Securities, Scotiabank, and TD Securities.
Earlier this month, three analysts revised their expectations – all higher.
Desjardins’ Doug Young hiked his target price to $64 from $58. TD’s Mario Mendonca lifted his target price by $1 to $66. Sumit Malhotra, an analyst at Scotiabank, raised his target price to $69 from $62.
The consensus earnings per share estimates are $6.05 in 2019 and $6.47 in 2020.
Earnings expectations have increased for this year and next year. For instance, three months ago, the Street was forecasting earnings per share of $5.92 for 2019 and $6.39 for 2020.
The stock is commonly valued on a price-to-book basis as well as a price-to-earnings basis.
According to Bloomberg, the stock is trading at a price-to-earnings (P/E) multiple of 9.4 times the 2020 consensus estimate, which is slightly above its five-year historical average of 8.9 times. Over the past five years, the stock has traded at a forward P/E multiple as high as approximately 10.8 times, suggesting there is room for multiple expansion.
The average one-year target price is $64.44, implying the share price may increase nearly 6 per cent over the next 12 months. Individual price targets are as follows in numerical order: $55 (the low on the Street is from National Bank’s Gabriel Dechaine), $61, three at $64, $65, $66, $69 and $72 (the high on the Street is from RBC’s Darko Mihelic).
Insider transaction history
So far, in the second half of 2019, five insiders have reported transactions in the public market – all sales resulting from exercised options.
Most recently, on Sept. 24, chief economist Clément Gignac exercised his options, receiving 5,000 shares at a cost per share of $55.85, and sold 5,000 shares at a price per share of $60.2666, eliminating the account’s position. Net proceeds, not including trading fees, exceeded $22,000.
Between Sept. 5 and Sept. 24, president and chief executive officer Denis Ricard exercised his options, receiving a total of 10,000 shares at a cost per share of $38.48, and sold 10,000 shares at an average price per share of approximately $58.51, leaving 30,000 shares in his portfolio. Net proceeds, excluding commission charges, totaled over $200,000.
On Sept. 5, Normand Pépin, executive vice-president and assistant to the president, exercised his options, receiving 3,800 shares at a cost per share of $35.51, and sold 3,800 shares at a price per share of $56.12 with a remaining account balance of 168,547 shares. Net proceeds, not including trading fees, totaled over $78,000.
On Aug. 12, Renée Laflamme, executive vice-president – individual insurance, savings and retirement, exercised her options, receiving 6,000 shares at a cost per share of $26.03, and sold 6,000 shares at a price per share of $54.8601, leaving 5,924 shares in her account. Net proceeds, excluding commission fees, totaled nearly $173,000.
Between Aug. 7 and Aug. 9, Michael Stickney, executive vice-president – U.S. development, exercised his options, receiving 6,000 shares at a cost per share of $32.08, and sold 6,000 shares at an average price per share of approximately $54.46, leaving 19,500 shares in his account. Net proceeds from these transactions, excluding commission charges, totaled over $134,000.
Year-to-date, the share price has rallied 40 per cent, making the stock the fifth-best performing company of the 27 members in the S&P/TSX composite financial sector index.
On Tuesday, the stock price climbed 1.6 per cent on high volume, closing at a record high. Over 500,000 shares traded, above the three-month historical daily average trading volume of approximately 384,000 shares.
Looking at key technical resistance and support levels, the stock’s next major ceiling of resistance is around $65. Should the share price retreat, there is technical support around $57, which is close to its 50-day moving average (at $57.24). Failing that, there is downside 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.