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Inside the Market Wednesday’s TSX breakouts: This stock soared 93% in 2018 with a further 68% gain forecast in 2019

On today’s TSX Breakouts report, there are 98 stocks on the positive breakouts list (stocks with positive price momentum), and just five securities are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a stock that appears on the positive breakouts list.

This small-cap stock is poised to deliver spectacular earnings growth in 2019. The Street is anticipating earnings per share will jump to $1.50 in 2019 from a forecast of 61 cents per share in 2018.

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Next week, the company will be releasing its fourth-quarter earnings results. During the past three quarters, the company has reported better-than-expected earnings sending the share price soaring 8 per cent, 9 per cent, and 15 per cent the following trading day.

With a unanimous buy call, the security highlighted today is North American Construction Group Ltd. (NOA-T).

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

The company

Alberta-based North American Construction Group, or NACG, is a construction and mining contractor, which services energy and resource companies. NACG owns a fleet of equipment including trucks, excavators, dozers, loaders, graders, and compactors. Among its key customers are: Syncrude, Suncor Energy, and Imperial Oil.

The company’s earnings are forecast to soar this year fueled by its recently completed acquisitions.

On Nov. 23, the company completed the $199-million acquisition of the heavy construction equipment fleet from Aecon Group Inc. When the acquisition was announced in early Oct., the Chairman and Chief Executive Officer Martin Ferron remarked on the positive economics of this acquisition, “The transaction is expected to provide NACG with over $220 million of additional annual revenue capability which we anticipate will soon be underpinned by term contracts with multiple customers,” added Mr. Ferron. “Largely because we already have much of the indirect cost structure in place to support the incremental activity, we expect the transaction to be accretive to EBITDA [earnings before interest, taxes, depreciation and amortization], free cash flow and earnings. In particular, we anticipate 2019 basic earnings per share could exceed $1.60.”

On Nov. 5, the company completed the acquisition of a 49 per cent ownership interest in Alberta-based construction and mining company Nuna Logistics Ltd in a deal valued at $42.5-million. The acquisition diversifies the company’s revenues as all of Nuna’s sales are generated outside of the oil-sands market from projects principally located in northern Canada (Nunavut and the Northwest Territories). Nuna has contracted work on projects such as Rio Tinto’s Diavik diamond mine and Agnico Eagle Mines’ Meliadine gold project. Nuna’s customer base includes major players such as Newmont Mining, BHP Billiton, Kinross, and DeBeers.

Another key driver lifting the share price has been the company’s better-than-expected quarterly earnings results. For the past three consecutive quarters, the stock price has spiked higher by a minimum of 8 per cent after the release of its quarterly earnings.

After the market closed on Oct. 30, the company reported revenue of $84.9-million, topping the consensus estimate of $80.2-million. Adjusted EBITDA came in at $19.1-million, surpassing the $12.6-million consensus estimate. Adjusted EBITDA margin expanded to 22.5 per cent from 16.4 per cent reported during the same period last year. Earnings per share was 5 cents, exceeding the Street’s forecast of 2 cents per share. The share price rallied 8 per cent the following trading session.

On the third-quarter earnings call, Mr. Ferron indicated that he believes earnings per share could potentially come in at $1.00 by 2020. He indicated that deleveraging the company’s balance sheet after the two acquisitions was a priority for management stating, “It is our clear intention to reduce our leverage by around $150 million over the next three years from operating cash flow.” He added, “Additionally, I would like to stress here that importantly, we will not, I repeat, not be issuing equity at anywhere near current stock price levels to raise incremental capital.”

After the market closed on July 31, NACG reported another earnings beat, which sent the share price soaring 9 per cent the following trading day on high volume. Revenue was $79.5-million, up 67 per cent year-over-year. Adjusted EBITDA was $15.2-million, well above the consensus estimate of $8.9-million.

After the market closed on May 1, the company reported better-than-expected first-quarter financial results. Revenue came in at $114.7-million up 24 per cent year-over-year, and above the Street’s expectations of $102-million. Adjusted EBITDA was $39.1-million, up 24 per cent year-over-year and ahead of the consensus estimate of $29-million. Earnings per share was 44 cents, exceeding the consensus estimate of 36 cents. The share price rallied 15 per cent the following trading session.

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The company will be releasing its fourth-quarter financial results after the market closes on Monday February 25 and hosting an earnings call the following day at 9 a.m. (ET). The Street is anticipating revenue of $93-million, EBITDA of $20.7-million and earnings per share of 13 cents.

The stock is dual-listed trading on both the New York Stock Exchange and the Toronto Stock Exchange under the same ticker, NOA.

Dividend policy

The company pays its shareholders a quarterly dividend of 2 cents per share, or 8 cents per share on a yearly basis. This equates to an annualized dividend yield of 0.6 per cent. The company has maintained its dividend at this level since 2014.

Analysts’ recommendations

There are four analysts that actively cover this small-cap stock with a market capitalization of $387-million and all four analysts have buy recommendations.

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The firms providing recent research coverage on the company are as follows in alphabetical order: Canaccord Genuity, National Bank Financial, PI Financial, and Raymond James.

Revised recommendations

The most recent revision occurred in November when Ben Cherniavsky, an analyst from Raymond James, increased his target price to $15.50 from $11.50.

Financial forecasts

The Street is forecasting revenue of $380-million in 2018, jumping 84 per cent to $700-million in 2019. The consensus EBITDA estimate is $94-million in 2018, increasing 70 per cent to $160-million in 2019. The consensus earnings per share estimates are 61 cents in 2018, climbing to $1.50 in 2019.

Earnings expectations have been stable, unchanged from three months ago.

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Valuation

According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 3.3 times the 2019 consensus estimate, which is below its three-year historical average of 4.3 times.

The one-year consensus target price is $21.50, suggesting there is over 50 per cent upside in the share price over the next 12 months, or a 2019 price return of over 68 per cent (the share price is already up over 17 per cent year-to-date). Individual target prices are as follows in numerical order: $15.50 (the low on the Street is from Ben Cherniavsky, the analyst at Raymond James), $20, $21 and $22 (the high on the Street is from Yuri Lynk, the analyst at Canaccord Genuity).

Insider transaction activity

Only one insider has reported trading shares in the public market in 2019.

Between Jan. 2 and Jan. 8, chairman and chief executive officer Martin Ferron exercised his options, receiving 32,000 shares, and sold 23,534 shares at an average price per share of approximately $12.49, leaving 1,668,773 shares in his portfolio.

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Chart watch

The share price continues to rally higher. Year-to-date, the share price is up over 17 per cent, this is in addition to the 93 per cent price return realized in 2018.

Looking at key resistance and support levels, the share price has an initial ceiling of resistance around $15. After that, the share price could rally to between $19 and $20 before encountering major resistance. Looking at the downside, there is strong technical support around $13, near its 50-day moving average (at $12.90) Failing that, there is support around $11, close to its 200-day moving average (at $11.03).

The stock can be thinly traded, which can increase the volatility in the share price. The three-month historical daily average trading volume on the Toronto Stock Exchange is approximately 86,000 shares.

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.

Positive BreakoutsFeb. 19 close
AW-UN-TA&W Revenue Royalties Income Fund $38.74
AGI-TAlamos Gold Inc $6.38
AD-TAlaris Royalty Corp $19.76
ALA-TAltaGas Ltd $15.86
ARX-TARC Resources Ltd $10.20
AR-TArgonaut Gold Inc $2.09
AGB-TAtlantic Gold Corp. $2.18
BLDP-TBallard Power Systems Inc $4.76
BNS-TBank of Nova Scotia $74.89
BCE-TBCE Inc $57.63
BBD-B-TBombardier Inc $2.76
BPF-UN-TBoston Pizza Royalties Income Fund $17.44
BEP-UN-TBrookfield Renewable Energy Partners LP $39.63
CWB-TCanadian Western Bank $30.43
TRST-TCannTrust Holdings Inc. $11.44
CPX-TCapital Power Corp $30.05
CVE-TCenovus Energy Inc $11.62
CDAY-T Ceridian HCM Holding Inc. $61.40
CHP-UN-TChoice Properties REIT $13.54
CHR-TChorus Aviation Inc $7.49
CM-TCIBC $113.22
CRT-UN-TCT Real Estate Investment Trust $13.46
DSG-TDescartes Systems Group Inc $44.18
DGC-TDetour Gold Corp $14.41
UFS-TDomtar Corp. $69.18
DPM-TDundee Precious Metals Inc $4.43
ELD-TEldorado Gold Corp $5.86
EDR-TEndeavour Silver Corp $3.25
ERO-TEro Copper Corp. $15.05
EIF-TExchange Income Corp $31.25
FR-TFirst Majestic Silver Corp $8.74
FVI-TFortuna Silver Mines Inc $5.44
FRII-TFreshii Inc. $3.26
GLXY-TGalaxy Digital Holdings Ltd. $1.93
GMP-TGMP Capital Inc $2.74
GSY-Tgoeasy Ltd $45.80
G-TGoldcorp Inc $14.88
GSC-TGolden Star Resources Ltd. $5.49
GCM-TGran Colombia Gold Corp. $4.42
GRT-UN-TGranite Real Estate Investment Trust $61.72
GPR-TGreat Panther Silver Ltd $1.15
GCG-TGuardian Capital Group $23.41
HRX-THeroux-Devtek Inc $16.00
HBM-THudBay Minerals Inc $8.40
IBG-TIBI Group Inc. $4.67
IAG-TiA Financial Corporation Inc. $50.33
ISV-TInformation Services Corp. $16.86
IPCO-TInternational Petroleum Corp. of Sweden $5.65
IVN-TIvanhoe Mines Ltd $3.32
KEY-TKeyera Corp $29.16
K-TKinross Gold Corp $4.97
KL-TKirkland Lake Gold Inc $45.11
LIF-TLabrador Iron Ore Royalty Corp $33.42
LB-TLaurentian Bank of Canada $44.40
LUG-TLundin Gold Inc $5.88
LUN-TLundin Mining Corp $6.61
MAG-TMAG Silver Corp $12.33
MEQ-TMainstreet Equity Corp $44.80
NUAG-TNew Pacific Metals Corp. $2.11
NOA-TNorth American Construction Group Ltd. $14.27
PDL-TNorth American Palladium Ltd $18.25
NWC-TNorth West Co Inc $32.58
OR-TOsisko Gold Royalties Ltd $13.82
PPL-TPembina Pipeline Corp $48.68
PBL-TPollard Banknote Ltd. $24.25
POW-TPower Corp of Canada $27.32
PWF-TPower Financial Corp $28.46
PD-TPrecision Drilling Corp $3.49
PG-TPremier Gold Mines Ltd $1.95
QSR-TRestaurant Brands International Inc $85.80
RY-TRoyal Bank of Canada $101.79
RUS-TRussel Metals Inc $24.16
SBB-TSabina Gold & Silver Corp $1.48
SSL-TSandstorm Gold Ltd $7.43
SAP-TSaputo Inc $42.02
SEA-TSeabridge Gold Inc $18.89
SES-TSecure Energy Services Inc $8.69
SMF-TSEMAFO Inc $3.36
SHOP-TShopify Inc. $239.75
SVM-TSilvercorp Metals Inc $3.32
STN-TStantec Inc $32.39
SRX-TStorm Resources Ltd. $2.11
SLF-TSun Life Financial Inc $49.11
SU-TSuncor Energy Inc $45.49
THO-TTahoe Resources Inc $5.15
TVE-TTamarack Valley Energy Ltd. $2.51
TGZ-TTeranga Gold Corp $4.59
TVK-TTerraVest Capital Inc $12.04
X-TTMX Group Ltd $84.01
TXG-TTorex Gold Resources Inc $14.73
TIH-TToromont Industries Ltd $68.90
TD-TToronto-Dominion Bank $75.69
TA-TTransAlta Corp $7.60
TRP-TTransCanada Corp $56.90
VNR-TValener Inc $22.51
WDO-TWesdome Gold Mines Ltd. $5.34
WPM-TWheaton Precious Metals Corp. $28.81
WSP-TWSP Global Inc $70.23
Negative Breakouts
APS-TAptose Biosciences Inc $2.50
IMV-TIMV Inc. $6.46
LGO-TLargo Resources Ltd. $2.46
LAS-A-TLassonde Industries Inc $183.02
NMX-TNemaska Lithium Inc. $0.31

Source: Bloomberg

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