On today's TSX Breakouts report, there are 33 stocks on the positive breakouts list (stocks with positive price momentum), and 15 stocks are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a stock that may appear on the positive breakouts list in the near future, particularly if a sector rotation into laggards continues. To illustrate, during the first eight months of the year, the worst performing sector in the S&P/TSX composite index was the energy sector, declining 16 per cent. Month-to-date, the best performing sector in the TSX Index is the energy sector, rising 3 per cent. This stock's share price is up over 6 per cent month-to-date. While the price of oil is up just under 6 per cent so far this month. The security discussed today is Suncor Energy Inc. (SU-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Calgary-based Suncor is focused on its oil sands operations in the Athabasca region.
After the market closed on July 26, the company reported its second quarter financial results. Cash flow per share came in at 98 cents, just shy of the consensus estimate. The share price increased 2 per cent the following trading day.
In the earnings release, management provided positive operational updates. Notably, its Fort Hills project is 90 per cent complete with "first oil expected at the end of 2017" and its "Hebron platform was successfully towed out to its final offshore location and safely positioned on the sea floor in the second quarter of 2017. Drilling activities are on schedule and first oil remains on track for the end of 2017."
Management increased its capital spending guidance to between $5.4-billion and $5.6-billion from between $4.8-billion and $5.2-billion, reflecting higher costs.
Management has been actively repurchasing shares, returning capital to its shareholders. Back in April, the company initiated a sizeable $2-billion share buyback program. On the first quarter conference call, the chief financial officer Alister Cowan stressed, "I was just going to emphasize to everybody on the call that come May 2, we will be in the market buying our stock back." Management provided an update on its buyback program. On the second quarter conference call held on July 27, Mr. Cowan stated, "As of today, we have repurchased and cancelled over 11 million shares for approximately $450-million. So we've been quite aggressive in July on this program."
Also supportive for the share price of Suncor is the price of oil, which has stabilized in the mid-to-high $40 price range in recent month, and is currently hovering just below $50 a barrel (U.S.). In a September 13 report released by the International Energy Agency (IEA), the 2017 global demand outlook for oil was revised higher as "demand growth continues to be stronger than expected, particularly in Europe and the U.S.".
Dividend policy
The company pays shareholders a quarterly dividend of 32 cents per share, or $1.28 per share on a yearly basis. This equates to an annualized yield of just over 3 per cent. In February, management announced it was increasing its quarterly dividend by 10 per cent, lifting it to its present level of 32 cents per share from 29 cents per share.
Management remains committed to its dividend. To illustrate, despite the steep selloff in the price of oil that began in mid-2014, the company did not reduce its dividend. In fact, in July 2015, management announced a 3.6 per cent dividend increase, lifting its quarterly dividend by a cent to 29 cents per share from 28 cents per share.
Analysts' recommendations
There are 28 firms that provide research coverage on this company, of which 16 analysts have buy recommendations, 11 analysts have hold recommendations, and one analyst (from Veritas Investment Research) has a 'sell' recommendation.
Valuation
Analysts commonly value the stock on an enterprise value-to-debt adjusted cash flow basis.
The one-year consensus target price is $45.40, suggesting there is 9 per cent upside in the share price over the next 12 months. Including the dividend yield, this represents a potential total return of 12 per cent.
Revised recommendations
Last month, two analysts revised their recommendations.
Jason Frew, the analyst from Credit Suisse, reduced his target price to $48 from $50 but maintained his 'outperform' recommendation. Neil Fonseca, from EVA Dimensions, increased his recommendation to a "hold" from an "underweight."
Insider transactions
Month-to-date, there is just one relatively small transaction reported by an insider.
On Sept. 6, president and chief executive officer Steve Williams bought 1,000 shares for an account in which he has control or direction over (NBCN Inc.) at an average price per share of $39.391, initiating a portfolio position.
There were no insider transactions in the public market reported in the second quarter.
Chart watch
Year-to-date, the share price is down mildly by 5.7 per cent, outperforming the performance of the S&P/TSX composite index energy sector.
In terms of key resistance and support levels, the stock price has overhead resistance around $42, and after that, between $44 and $45. Should the share price retreat, there is downside support around $40, near its 50-day moving average (at $39.40), and failing that, around $36.50.
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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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