On today’s Breakouts report, there are 32 stocks on the positive breakouts list (stocks with positive price momentum), and 32 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a dividend stock that is on the negative breakouts list – Corus Entertainment Inc. (CJR-B-T). Month-to-date, the share price has declined 11 per cent.
Analysts are bullish on the stock. The stock has seven buy recommendations out of the eight analysts who cover the company. The average one-year target price implies the share price has 43-per-cent upside potential over the next year. However, individual target prices are wide-ranging, implying one year price returns that range from 19 per cent to 77 per cent.
The stock has fallen sharply over the years. Back in 2014, the share price was in the mid-$20, well above where it is currently trading (closed at $5.66 on July 27). Long-term investors have not been rewarded with positive price returns, but shorter-term investors may have been able to make money in this stock. To illustrate, the share price has rallied 32 per cent year-to-date.
Given the stock’s price volatility, conservative, long-term investors may want to pass on this stock and seek out other investment opportunities despite this stock’s reasonable valuation and attractive dividend yield.
A brief outline on Corus is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
Toronto-based Corus is a media and content company operating 33 specialty television networks and 15 conventional television stations including Global Television, W Network, HGTV Canada, Food Network Canada, History, Disney Channel Canada, YTV, and Showcase. In addition, the company’s portfolio includes 39 radio stations.
The company’s revenue breakdown in fiscal 2020 was 93 per cent from television and 7 per cent from radio. Corus’ revenue stems from three main sources. In fiscal 2020, 61 per cent was from advertising, 32 per cent was subscriber revenue, and the balance, 7 per cent, was from merchandising, distribution, and other sources.
- High dividend yield. However, the dividend has not grown, remaining unchanged since 2018.
- Reasonable valuation. Stock is trading in-line with its three-year historical average multiple.
- Strengthening its balance sheet. Net debt to segment profit of 2.8 times at quarter-end, down from 3.2 times at the end of fiscal 2020 (Aug. 31, 2020). Management targets a leverage ratio of 2.5 times, which it believes it will reach soon.
- Key risks to be aware of: 1) continuation of cord cutting (i.e. individuals cancelling traditional cable TV services) and cord-shaving (i.e. individuals reducing the number of channels they subscribe to); 2) Zoomers (Generation Z) and millennials are not interested in watching cable TV, especially with all the commercials; 3) slow recovery or weakness in advertising revenue; and 4) lacks significant earnings growth. The Street is forecasting EBITDA (earnings before interest, taxes, depreciation and amortization) of $541-million in fiscal 2022, up 3.8 per cent year-over-year from $521-million anticipated in fiscal 2021.
Before the market opened on June 29, the company reported its third-quarter fiscal 2021 financial results (the company’s fiscal year-end is Aug. 31).
Revenue came in at $403-million, slightly ahead of the consensus estimate of $398-million, and up 15 per cent year-over-year. Television revenue increased 15 per cent. Television advertising revenue increased 22 per cent. Television subscriber revenue increased 2 per cent . Revenue from radio increased 31 per cent.
As of June 29, Corus had over 600,000 subscribers on its STACKTV, Nick+ and other streaming services, up from over 500,000 subscribers as of April 9. The share price jumped 6.6 per cent that day on high volume with over 3.9-million shares traded, well above the three-month historical daily average trading volume of approximately 1-million shares.
On the earnings call, president and chief executive officer Doug Murphy commented on the company’s growth opportunities, “Our strategy to build a diverse portfolio of digital streaming products remains a priority, generating new audiences and thus more advertising inventory and sales growth. When we look at STACKTV audiences, they’re streaming the equivalent of 10 million episodes per month. Notably, almost half of the total STACKTV audience enjoys the experience of live television, which increases overall audience delivery and enhances our advertising revenues … We announced that dynamic advertising insertion for our video-on-demand viewers on STACKTV will arrive before the end of this calendar year. Once again, we are creating more digital advertising inventory and in turn more revenue. The new Global TV app, launched only 16 months ago, not only improves the value proposition for the subscribers to our channels business, it also offers us an opportunity to feature our premium video content online. There is an insatiable demand for premium digital video content from viewers and advertisers alike, and Corus is there to meet it … In addition to our existing connected TV platforms: Chromecast, Roku, Fire TV and Apple TV, we are thrilled to announce the Global TV app will also be available on Samsung later this year, yet another example of Corus putting more content in more places.”
The company pays its shareholders a quarterly dividend of 6 cents per Class B share or 24 cents per share yearly, equating to a current annualized dividend yield of 4.2 per cent.
The company has maintained its dividend at this level since late 2018.
The stock is actively covered by eight analysts, of which seven analysts have buy recommendations, and one analyst (BMO’s Tim Casey) has a “market perform” recommendation. Interestingly, Mr. Casey has been consistent, maintaining his rating on the stock since 2008.
The firms providing recent research coverage on the company are: BMO Nesbitt Burns, Canaccord Genuity, CIBC World Markets, Cormark Securities, National Bank Financial, RBC Dominion Securities and and RBC Capital Markets.
Since the beginning of June, the following analysts have raised their target prices.
- BMO’s Tim Casey to $6.75 from $6.50.
- CIBC’s Bob Bek to $7.50 from $7.25.
- RBC’s Drew McReynolds to $8 from $7.
According to Bloomberg, the consensus EBITDA estimates are $521-million in fiscal 2021, and forecast to rise 3.8 per cent to $541-million in fiscal 2022. The Street is forecasting earnings per share of 86 cents in fiscal 2021 as well as in fiscal 2022.
In recent months, earnings expectations have increased modestly for fiscal 2022. For instance, four months ago, the Street was forecasting EBITDA of $521-million in fiscal 2021 and $521-million in fiscal 2022. Meanwhile, the consensus earnings per share estimates were 82 cents in fiscal 2021 and 83 cents in fiscal 2022.
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 5.2 times the fiscal 2022 consensus estimate, which is below the five-year historical average EV/EBITDA multiple of 6.1 times and in-line with its three-year historical average multiple of 5.2 times.
Over the past three years, the stock has traded at a forward EV/EBITDA multiple ranging from around 4 times (bottomed in the first quarter of calendar 2020 when markets tumbled) to a peak multiple of just under 6.5 times.
The average one-year target price is $8.08, implying the share price may appreciate 43 per cent over the next 12 months. However, target prices range widely, implying price returns of between 19 per cent and 77 per cent. Individual target prices are as follows in numerical order: $6.75 (from BMO’s Tim Casey), $7.40, two at $7.50, two at $8, $9.50, and $10 (from Scotiabank’s Jeffrey Fan).
Insider transaction activity
Over the past six months, there has not been any trading activity in the public market reported by insiders.
Month-to-date, the share price has declined 11 per cent, making it the worst performing stock in the S&P/TSX communication services sector.
Despite, the recent price weakness, the share price is still up 32 per cent year-to-date, making Corus the second best performing stock in the S&P/TSX communication services sector, behind Shaw Communications Inc. (SJR.B-T).
Looking at a longer-term chart, the share price has been in a multi-year downtrend. In 2014, the share price was in the mid-$20s. On July 27, the stock price closed at $5.66. Long-term investors have not been rewarded with positive price returns.
In terms of key resistance and support levels, the stock price has initial overhead resistance between $6 and $6.50, near its 50-day moving average (around $5.99). After that, there is a major ceiling of resistance around $8. Looking at the downside, there is initial technical support around $5.50. Failing that, there is strong downside support around $5, close to its 200-day moving average (at $5.18).
The stock is nearing oversold territory with a relative strength index (RSI) reading of 36. Generally, an RSI reading at or below 30 reflects an oversold condition.
This report is not an investment recommendation. 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.
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