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Inside the Market TSX breakouts: This dividend stock is trading below historical valuations and CPPIB just became a major investor

On today’s TSX Breakouts report, there are 32 stocks on the positive breakouts list (stocks with positive price momentum) and 34 stocks are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a stock that appears on the positive breakouts list. On Tuesday, the share price popped over 8 per cent on news of a roughly $200-million investment in the company made by a strategic partner. Since closing at a record high in April 2018, the share price has decline over 30 per cent. On the recent earnings call, management highlighted headwinds that the company faces that may limit near-term share price appreciation. For patient, long-term investors, the depressed stock price may represent an investment opportunity. The security featured today is Premium Brands Holdings Corp. (PBH-T).

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

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The company

British Columbia-based Premium Brands is a manufacturer and distributor of food products including sandwiches and processed meats with brand names such as Piller’s, McSweeney’s, Hygaard and Grimm’s Fine Foods. The company has two core operating segments: specialty foods and premium food distribution. In 2018, specialty foods represented 67 per cent of revenue with the balance, 33 per cent, from premium food distribution.

On Tuesday, the share price rallied nearly 9 per cent on high volume after the company announced a roughly $200-million investment in the company by a long-term strategic partner, CPPIB (Canada Pension Plan Investment Board). CPPIB completed a private placement of over 2.6-million shares at a price of $76.02 per share, taking CPPIB’s ownership position to 7 per cent of the shares outstanding.

Premium Brands’ president and chief executive officer George Paleologou remarked in a news release, “As we have expanded our footprint across North America our pipeline of acquisition and organic growth opportunities has scaled dramatically. By partnering with CPPIB not only do we better position ourselves to execute on these opportunities but we also secure a long term focused shareholder who shares our values and vision for the future. Furthermore, we gain access to the insights of a leading global investor, which will become increasingly important as we start to look beyond North America.”

On the first-quarter earnings call, Mr. Paleologou commented on the company’s U.S. growth prospects, “The opportunities we’re seeing in the U.S. are even bigger than we originally anticipated, and correspondingly, we’re working hard to add capacity to sustain and support this growth. Many of our plants are looking at expanding their operations as we work towards our objective of doubling the size of the company over the next five years.”

Before the market opened on May 13, the company reported its first-quarter financial results. Revenue came in at a record $776.6-million, up 33 per cent year-over-year. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $52-million. Reported adjusted earnings per share came in at 52 cents, in-line with the consensus estimate. The share price was relatively unchanged that day, rising 15 cents or 0.2 per cent.

On the earnings call, chief financial officer Will Kalutycz highlighted near-term challenges and reduced the lower end of management’s previously announced EBITDA guidance, “Looking forward, we are seeing solid momentum building across all of our platforms. However, due to significant uncertainties associated with an outbreak of African swine fever in China and the possible repercussions of this on global protein prices, we've expanded our adjusted EBITDA guidance range to $300-million to $340-million from the previous guidance range of $320-million to $340-million. We are maintaining our 2019 revenue guidance range of $3.66-billion to $3.72-billion.”

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Dividend policy

The company pays its shareholders a quarterly dividend of 52.5 cents per share, or $2.10 per share on a yearly basis. This translates to an annualized yield of 2.5 per cent.

The company has announced a dividend increase in March of every year since 2015, and each of the past three dividend hikes have exceeded 10 per cent.

The free cash flow payout ratio in 2018 stood at 37 per cent.

Analysts’ recommendations

This mid-cap stock, with a market capitalization of $2.86-billion, is actively covered by 11 analysts on the Street. There are eight buy recommendations, two hold recommendations and one ‘sell’ recommendation (from Dimitry Khmelnitsky, the analyst at Veritas Investment Research).

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The firms providing recent research coverage on the company are as follows in alphabetical order: BMO Capital Markets, Canaccord Genuity, CIBC Capital Markets, Cormark Securities, Desjardins Securities, Industrial Alliance Securities, PI Financial Corp., RBC Capital Markets, Scotiabank, TD Securities, and Veritas Investment Research.

Revised recommendations

Month-to-date, six analysts have revised their recommendations.

TD Securities’ analyst Derek Lessard increased his target price by $3 to $96. George Doumet, the analyst at Scotiabank, raised his target price to $96.50 from $88. Alexander Diakum, the analyst at Canaccord Genuity, bumped his target price up by $5 to $95. John Zamparo, the analyst at CIBC Capital Markets, lifted his target price by $4 to $76.

Meanwhile, two analysts lowered their expectations. Sabahat Khan from RBC Capital Markets trimmed his target price to $96 from $97. Kyle McPhee, the analyst at Cormark Securities, cut his target price to $91 from $95.

Financial forecasts

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The Street is forecasting EBITDA of $327-million in 2019, up from adjusted EBITDA of $251-million reported in 2018, with EBITDA anticipated to climb to $367-million in 2020. The consensus earnings per share estimates are $3.98 for 2019 and $4.84 for 2020.

EBITDA expectations have held relatively steady for 2019 and increased for 2020. For instance, three months ago, the consensus EBITDA estimates were $323-million for 2019 and $354-million for 2020.

Valuation

According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 13.3 times the consensus 2019 estimate, below its three-year historical average of 14.8 times. The stock is trading at an EV/EBITDA multiple of 11.9 times the 2020 consensus estimate, below its three-year historical average of 12.7 times and above its trough multiple of approximately 10 times.

The one-year consensus target price is $89.45, suggesting there is just over 5 per cent upside in the share price over the next 12 months. Target prices range from a low of $69.50 from the analyst at Veritas Investment Securities to a high of $100 from the analyst at PI Financial Corp. Individual target prices are as follows in numerical order: $69.50, $76, $83, $86, $91, two at $95, two at $96, $96.50, and $100.

Insider transactions

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

Chart watch

Since April 2018, the stock price has been under pressure, falling over 40 per cent from over $121 to below $70 in Nov. Since mid-Nov., the share price has been consolidating, trading sideways, predominately between $70 and $80. On Tues., the share price broke above a major resistance level ($80) on high volume, closing at $84.80.

In terms of key resistance and support levels, the stock price has initial overhead resistance around $90, and after that around $100. Looking at the downside, there is initial support around $80. Failing that, there is strong support at around $70.

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.

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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.

Wednesday's TSX Breakouts

Price
Positive Breakouts21-May
ALA-TAltaGas Ltd $19.49
AX-UN-TArtis Real Estate Investment Trust $11.75
BAD-TBadger Daylighting Ltd $48.39
BLDP-TBallard Power Systems Inc $5.26
BCE-TBCE Inc $60.97
BEP-UN-TBrookfield Renewable Energy Partners LP $43.24
GIB-A-TCGI Group Inc $98.20
CIA-TChampion Iron Ltd. $2.73
CHE-UN-TChemtrade Logistics Income Fund $9.84
CIX-TCI Financial Corp $20.87
CMG-TComputer Modelling Group Ltd $6.30
DOL-TDollarama Inc $43.00
EFN-TElement Fleet Management Corp. $10.09
EMA-TEmera Inc $51.60
FEC-TFrontera Energy Corp. $14.72
GDI-TGDI Integrated Facility Services Inc. $27.25
H-THydro One Ltd. $22.53
HYG-THydrogenics Corp $12.95
IBG-TIBI Group Inc. $5.57
IFC-TIntact Financial Corp $117.00
MEQ-TMainstreet Equity Corp $56.56
BCI-TNew Look Vision Group Inc $35.00
NWH-UN-TNorthWest Healthcare Properties REIT $11.91
OTEX-TOpen Text Corp $54.92
PLC-TPark Lawn Corp. $27.97
PBH-TPremium Brands Holdings Corp $84.80
QSR-TRestaurant Brands International Inc $92.20
SVI-TStorageVault Canada Inc. $2.81
SMU-UN-TSummit Industrial Income REIT $12.55
TRP-TTransCanada Corp $65.98
TWC-TTWC Enterprises Ltd. $15.65
VMD-TViemed Healthcare Inc. $9.31
Negative Breakouts
BB-TBlackBerry Ltd $11.06
BNP-TBonavista Energy Corp $0.70
CFP-TCanfor Corp $10.10
CFX-TCanfor Pulp Products Inc $12.10
CGG-TChina Gold International Resources Corp. $1.51
BCB-TCott Corp $17.97
UFS-TDomtar Corp. $58.90
DPM-TDundee Precious Metals Inc $3.94
EDR-TEndeavour Silver Corp $2.38
FM-TFirst Quantum Minerals Ltd $11.00
FVI-TFortuna Silver Mines Inc $3.44
GTE-TGran Tierra Energy Inc $2.82
GPR-TGreat Panther Silver Ltd $0.95
HBM-THudBay Minerals Inc $6.56
HBC-THudson's Bay Co $6.86
IFP-TInterfor Corp $12.57
KML-TKinder Morgan $12.04
LUC-TLucara Diamond Corp $1.48
MG-TMagna International Inc $59.63
DR-TMedical Facilities Corp $12.74
NGD-TNew Gold Inc $0.90
OSB-TNorbord Inc $29.58
NTR-TNutrien Ltd. $65.60
PAAS-TPan American Silver Corp $14.35
RFP-TResolute Forest Products Inc. $8.89
VII-TSeven Generations Energy Ltd $8.47
SCL-TShawCor Ltd $18.54
TCL-A-TTranscontinental Inc $14.40
TGL-TTransGlobe Energy Corp $2.25
TC-TTucows Inc. $84.92
TRQ-TTurquoise Hill Resources Ltd $1.66
VET-TVermilion Energy Inc $30.80
YRI-TYamana Gold Inc $2.59
YGR-TYangarra Resources Ltd. $2.70

Source: Bloomberg

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