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Monday’s TSX breakouts: Outperforming stock with 11 buy calls and a 23% gain forecast

On today's TSX Breakouts report, there are just five stocks on the positive breakouts list (stocks with positive price momentum), and 79 stocks are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a company whose share price has plunged 14 per cent over the past six weeks, and further downside may place the stock on the negative breakout list. The recent price weakness may represent a buying opportunity for growth investors to consider. The stock has 11 buy recommendations with a return of over 20 per cent forecast over the next year. The security highlighted below is Kinaxis Inc. (KXS-T).

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

The Company

Ottawa-based Kinaxis is a cloud-based supply chain management software provider. In terms of geographical revenue breakdown, in the first quarter, 88 per cent of the company's revenue was from North American based customer contracts, with the balance from Asia and European based contracts. Subscription revenue continues to grow, representing 73 per cent of total revenue, up from 68 per cent during the same period last year. Subscription revenue provides revenue predictability. In terms of customer concentration, during the first quarter, the top 10 customers accounted for approximately 49 per cent of total revenue, and one customer accounted for 12 per cent of total revenue.

After the market closed on May 3, the company reported better-than-expected first quarter financial results that sent the share price rising 2.9 per cent on high volume the following trading day. Over 480,000 shares traded on May 4, well above its three-month historical daily average trading volume of approximately 136,000 shares.

The company reported revenue of $32.5-million (U.S.) in the first quarter, relatively in-line with the consensus estimate of $32.7-million. Subscription revenue increased 29 per cent year-over-year to $23.9-million. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $8.5-million (U.S.), slightly ahead of the Street's forecast of $8.4-million. Adjusted EBITDA margins were 26 per cent and adjusted earnings per share came in at 23 cents (U.S.) beating the consensus estimate of 21 cents per share.

Also positive was management's 2017 guidance. Total revenue was unchanged with expectations of between $140-million (U.S.) and $144-million (U.S.) reported. Annual subscription revenue is now expected to grow between 26 per cent and 28 per cent, up from management's previous guidance of between 25 per cent and 27 per cent. Annual adjusted EBITDA margins are forecast to be between 25 per cent and 27 per cent, up from its previous guidance of between 24 per cent and 26 per cent.

During the earnings conference call, the president and chief executive officer, John Sicard, noted, "The majority of our booked subscription business in Q1 (the first quarter) were partner influenced. That's new. We're really thrilled about that. It tells us that we're on the right track. I can also say that all of our published partners have been engaged in Q1 activity. I've also noted in the past that we do have some large partners that I call -- they're in the incubation phase, if you will and you might expect to see some additional partners going public with Kinaxis in 2017 as a result. So we are working with the primary ones that you know about, Deloitte and Accenture for sure. There are others that we've engaged with that we're nurturing and maturing and stay tuned, you may hear some news in the rest of the year."

The company is scheduled to release its second quarter financial results after the market closes on Aug. 3. The Street is expecting revenue of $35.2-million (U.S.), EBITDA of $9.2-million (U.S.) and earnings per share of 23 cents (U.S.).

Dividend Policy

Management is focused on growth and as a result, the company currently does not pay its shareholders a dividend.

Analysts' Recommendations

This mid-cap technology stock, with a market capitalization of just under $2-billion, is well covered by the Street with 13 analysts covering the company. The stock has 11 buy recommendations and two analysts have hold recommendations.

The 13 firms providing research coverage on the company are as follows in alphabetical order: BMO Capital Markets, Canaccord Genuity, CIBC World Markets, Eight Capital, GMP, Industrial Alliance Securities, Laurentian Bank Securities, Macquarie, National Bank Financial, Paradigm Capital, RBC Capital Markets, Scotia Capital and TD Securities.

Financial Forecasts

The consensus revenue estimates are $143-millon (U.S.) for 2017 and $180-million for 2018. The Street is forecasting EBITDA of $37.8-million (U.S.) in 2017, rising to $49-million the following year. The Street is forecasting earnings per share of 96 cents (U.S.) in 2017 and earnings per share of $1.23 in 2018.

Over the past few months, earnings forecasts have increased. To illustrate, three months ago, the consensus revenue estimates were $143-million (U.S.) for 2017 and $177-million for 2018. The consensus EBITDA estimates were $36.5-million (U.S.) for 2017 and $47.4-million for 2018. Lastly, the Street was anticipating earnings per share of 92 cents (U.S.) for 2017 and $1.19 for 2018.

Valuation

According to Bloomberg, the stock is trading at an enterprise value-to-sales multiple of 7.7 times the fiscal 2018 consensus estimate, below its peak multiple of approximately 8.8 times reached last month.

The consensus one-year target price is $96.31, implying the stock price may appreciate approximately 23 per cent over the next 12 months.  Individual target prices are as follows in numerical order: $78, $87, two at $95, $96, $98, $99, five at $100, and $104.

Revised Recommendations

After the company reported solid first-quarter financial results in May, many analysts revised their target prices to $100. Here are several notable revisions. Robert Young, the analyst from Canaccord Genuity, took his target price up to $100 from $80. Paul Treiber from RBC Capital Market raised his target price to $100 from $82. Richard Tse from National Bank Financial lifted his target price to $100 from $85. Thanos Moschopoulos from BMO Capital Markets increased his target price to $95 from $83. Todd Coupland from CIBC World Markets increased his target price to $100 from $82, and Paul Steep from Scotia Capital bumped his target price to $87 from $76

Insider Transaction Activities

The share price closed at a record high of $90.97 on May 29. In the weeks prior to this, several insiders were selling shares in the market. On June 8, Sarah Sedgeman, the chief knowledge officer, exercised her options and sold the corresponding number of shares (12,500) at an average price  per share of $88. The following day, she sold the remaining 385 shares in her portfolio, eliminating her ownership position. On June 6, David Kelly, the executive vice-president of professional services, exercised his options and sold the corresponding number of shares (12,500) at an average price per share of $88.3949, eliminating his portfolio's position.

Chart Watch

Year-to-date, the share price has delivered a respectable 25 per cent return, exceeding the S&P/TSX information technology sector index return of 8 per cent. However, since the end of May, the stock price has been under pressure, falling nearly 14 per cent but not on significant volume. Over the past six weeks, the S&P/TSX composite information technology sector index has declined 5 per cent.

The relative strength index is at 36, suggesting the stock is approaching oversold territory. Generally, a reading at or below 30 indicates an oversold condition.

In terms of key resistance and support levels, the stock has initial overhead resistance around $80, and after that, around $85, which is close to its 50-day moving average (at $85.08). Meanwhile, there is downside support around $75, and failing that around $70, near its 200-day moving average (at $71.88).

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 indices 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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TSX Breakouts

Positive Breakouts
AC-TAir Canada $19.75
CF-TCanaccord Genuity Group Inc $5.88
MFC-TManulife Financial Corp $25.01
QBR.B-TQuebecor Inc $43.22
WJA-TWestJet Airlines Ltd $24.46
Negative Breakouts
ACR.UN-TAgellan Commercial REIT $10.54
AEM-TAgnico Eagle Mines Ltd $56.20
AGU-TAgrium Inc $117.02
ATD.B-TAlimentation Couche-Tard Inc $59.28
AX.UN-TArtis Real Estate Investment Trust $12.93
ATH-TAthabasca Oil Corp $0.95
BLDP-TBallard Power Systems Inc $3.51
BGM-TBarkerville Gold Mines Ltd. $0.80
ABX-TBarrick Gold Corp $19.81
BCE-TBCE Inc $58.12
BXE-TBellatrix Exploration Ltd $3.15
BIR-TBirchcliff Energy Ltd $5.57
CAR.UN-TCanadian Apartment Properties REIT $32.72
CNQ-TCanadian Natural Resources Ltd $36.33
REF.UN-TCanadian Real Estate Investment Trust $45.16
CTC.A-TCanadian Tire Corp Ltd $143.35
CHP.UN-TChoice Properties REIT $13.39
CSW.A-TCorby Spirit and Wine Ltd $21.04
CPG-TCrescent Point Energy Corp $9.19
CRH-TCRH Medical Corp $7.01
KWH.UN-TCrius Energy Trust $10.05
CRR.UN-TCrombie Real Estate Investment Trust $13.70
CRT.UN-TCT Real Estate Investment Trust $14.11
DGC-TDetour Gold Corp $13.96
UFS-TDomtar Corp. $47.31
D.UN-TDream Office REIT $18.91
DC.A-TDundee Corp $2.71
ELD-TEldorado Gold Corp $3.13
EDR-TEndeavour Silver Corp $3.63
XTC-TExco Technologies Ltd $10.44
EXF-TEXFO Inc $5.75
FR-TFirst Majestic Silver Corp $9.28
FSV-TFirstService Corp $81.27
WN-TGeorge Weston Ltd $115.34
GMP-TGMP Capital Inc $3.10
G-TGoldcorp Inc $16.15
HSE-THusky Energy Inc $13.65
IMO-TImperial Oil Ltd $36.17
IRG-TImvescor Restaurant Group Inc. $3.58
IFP-TInterfor Corp $17.62
JE-TJust Energy Group Inc $6.34
KPT-TKP Tissue Inc $13.97
L-TLoblaw Cos Ltd $70.90
LUG-TLundin Gold Inc $5.27
DR-TMedical Facilities Corp $13.87
MEG-TMEG Energy Corp $3.40
MRD-TMelcor Developments Ltd $14.35
MRC-TMorguard Corp. $177.51
MRT.UN-TMorguard Real Estate Investment Trust $14.38
NWC-TNorth West Co Inc $30.50
NDM-TNorthern Dynasty Minerals Ltd. $1.61
NVU.UN-TNorthview Apartment Real Estate Investme $20.54
NWH.UN-TNorthWest Healthcare Properties Real Est $10.56
OGC-TOceanaGold Corp $3.69
ONR.UN-TOneREIT $3.70
PAAS-TPan American Silver Corp $19.96
PKI-TParkland Fuel Corp $28.42
PEY-TPeyto Exploration & Development Corp $22.20
PHX-TPHX Energy Services Corp $2.16
POT-TPotash Corp of Saskatchewan Inc $21.04
PSK-TPrairieSky Royalty Ltd $27.90
PD-TPrecision Drilling Corp $3.97
P-TPrimero Mining Corp $0.41
PLI-TProMetic Life Sciences Inc $1.62
QTRH-TQuarterhill Inc. $1.84
RRX-TRaging River Exploration Inc $7.51
RFP-TResolute Forest Products Inc. $5.40
RIC-TRichmont Mines Inc $8.83
SAP-TSaputo Inc $40.27
VII-TSeven Generations Energy Ltd $20.67
SSO-TSilver Standard Resources Inc $11.71
SOT.UN-TSlate Office REIT $7.77
SU-TSuncor Energy Inc $36.67
SPB-TSuperior Plus Corp $11.14
THO-TTahoe Resources Inc $6.63
UNS-TUni-Select Inc $28.99
VET-TVermilion Energy Inc $38.79
WDO-TWesdome Gold Mines Ltd. $2.71
YRI-TYamana Gold Inc $2.88

Source: Bloomberg

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