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Friday’s TSX breakouts: A utility with a juicy 6% yield and a 23% total return expected

Markets appear to have stabilized for now.

On Thursday, U.S. stock markets recovered from Wednesday's selloff but the Canadian benchmark failed to recapture its losses.

In the U.S., the Dow Jones Industrial Average advanced 0.27 per cent, the S&P 500 index increased 0.37 per cent, and the Nasdaq composite index rallied 0.73 per cent.

Turning to Canada, the S&P/TSX composite index added 4 points, or 0.02 per cent. There were 100 securities in the TSX Index that advanced, 144 securities declined in value, and six stocks closed the day unchanged.

Year to date, the TSX Index is down 0.07 per cent. In the U.S., the Dow Jones Industrial Average is up 4.56 per cent, the S&P 500 index is up 5.67 per cent, and the Nasdaq composite has rallied 12.48 per cent.

On today's TSX Breakouts report, there are six stocks on the positive breakouts list (stocks with positive price momentum), and 46 stocks are on the negative breakouts list (stocks with negative price momentum).

Featured today is a company that appears on the negative breakouts list. The recent slide in the share price may soon provide a buying opportunity for investors. The company offers shareholders a 6 per cent dividend yield along with double-digit upside potential for its share price. The consensus target price suggests the stock price may have upside of 17 per cent. The security I am referred to is Superior Plus Corp. (SPB-T).

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

The company

Toronto-based Superior Plus has two core business operations: the energy distribution segment and the specialty chemicals segment.

Before the market opened on May 2, the company reported better-than-expected first quarter financial results. The stock price was relatively unchanged that day, increasing 5 cents to close at $13.11. Earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $119-million, ahead of the consensus estimate of $110-million. The company's total debt to adjusted EBITDA ratio stood at 3.3 times as at March 31, slightly above its long-term target of 3 times.

Management increased the lower end of its adjusted operating cash flow (AOCF) per share guidance for 2017, now expecting to report between $1.50 and $1.75, revised from its previous guidance of between $1.45 and $1.75.

A positive news announcement surrounding its proposed acquisition of the Canwest Propane industrial propane business from Gibson Energy Inc. could give the share price a lift. Management anticipates it will receive regulatory approval from the Competition Bureau in the upcoming months . On the earnings conference all, the chief financial officer Beth Summers stated, "The 2017 financial outlook excludes the impact of any estimated synergies from the Canwest transaction due to the anticipated closing in the second half of 2017." Management believes the proposed acquisition will provide at least $20-million of run-rate synergies and double-digit accretion to AOCF per share. In the first year, synergies of $5.3-million are expected, $14.4-million in year two, and $20-million by year three.

Dividend policy

The company pays its shareholders a monthly dividend of 6 cents per share, or 72 cents per share on a yearly basis. This equates to an annualized dividend yield of 6 per cent.

The company has maintained its dividend at this level since 2014.

Analysts' recommendations

There are 11 firms providing research coverage on this utility stock with a market capitalization of approximately $1.7-billion. The 11 firms providing research coverage are as follows in alphabetical order: AltaCorp Capital, BMO Capital Markets, Canaccord Genuity, CIBC World Markets, Cormark Securities, EVA Dimensions, National Bank Financial, Raymond James, RBC Capital Markets, Scotia Capital, and TD Securities.

Recommendations are mixed, five analysts currently have buy recommendations and five analysts have hold recommendations (one analyst is currently restricted on the stock).

Financial forecasts

The consensus EBITDA estimates are $288-million in 2017, rising 8 per cent to $312-million the following year. The consensus AOCF per share estimates are $1.70 in 2017, expanding to $1.89 in 2018.

The company has had positive earnings revisions. For instance, four months ago, the consensus EBITDA estimates were $266-million for 2017 and $282-million for 2018.

Valuation

According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 8.4 times the 2018 consensus estimate, in-line with the seven-year historical average of 8 times.

The average one-year target price is $14.03, suggesting there is 17 per cent upside potential in the share price over the next 12 months, and a total return of 23 per cent is anticipated when you include the dividend yield. Target prices range from a low of $13 (at BMO Capital Markets) to a high of $15 (at National Bank Financial and Raymond James), implying a price return of between 9 per cent and 26 per cent . Individual target prices provided by nine firms are as follows in numerical order: $13, $13.50, $13.75, four at $14, and two at $15.

Revised recommendations

Over the past two months, there have been relatively minor revisions by analysts. Earlier this month, Benoit Laprade, the analyst from Scotia Capital, tweaked his target price higher to $13.75 from $13.50, while Raveel Afzaal, the analyst at Canaccord Genuity, reduced his recommendation to a 'hold' from a 'buy' and trimmed his target price to $13.50 from $14.25. In April, Dirk Lever from AltaCorp Capital raised his target price to by $1 to $14.

Insider transaction activity

Recent insider transactions have been relatively small. On May 16, Ed Bechberger, the president of the specialty chemicals division, purchased 1,000 shares at an average price per share of $12.25, increasing his portfolio's position to 22,250 shares. On May 4, John Engelen, the vice-president of mergers and acquisitions, acquired 2,100 shares in the public market at an average price per share of $12.55. That same day, Val Mirosh, who sits on the board of directors, sold 600 shares at an average price per share of $13.02, reducing his portfolio's holdings to 5,400 shares.

Chart watch

Year to date, the stock has been a laggard, declining 6.3 per cent, underperforming the S&P/TSX composite utilities sector index that is up 5.3 per cent. In fact, of the 15 members in the sector, Superior Plus has the lowest price performance.

Over the past two weeks, since May 3, the share price has fallen nearly 9 per cent, and from a technical perspective is in oversold territory with its relative strength index at 22. Generally, a reading at or below 30 indicates an oversold condition.

However, looking at a 10-year chart, the share price remains within its historical trading band. Over the past decade, the stock has traded principally between $10 and $14 and is currently at the mid-point of this trading range.

Should the share price recover from its recent downdraft, there is overhead resistance around $13, close to its 50-day moving average (at $12.82). After that, there is resistance around $14, at the upper end of its historical trading band.

Should the share price continue to drift lower, there is initial technical support around $11.50, and failing that, around $10.

==

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.

TSX breakouts

Positive BreakoutsMay 18 close
AGB-TAtlantic Gold Corp. $1.58
CVG-TClairvest Group Inc. $37.62
SEC-TSenvest Capital $187.50
SII-TSprott Inc $2.43
SMU.UN-TSummit Industrial Income REIT $6.82
VLN-TVelan Inc $19.80
Negative Breakouts
ARE-TAecon Group Inc $15.27
AGU-TAgrium Inc $120.49
AIM-TAimia Inc $2.65
ALA-TAltaGas Ltd $30.22
ATH-TAthabasca Oil Corp $1.31
AVO-TAvigilon Corp $14.73
BAD-TBadger Daylighting Ltd $21.99
BNE-TBonterra Energy Corp $17.50
CF-TCanaccord Genuity Group Inc $4.26
CARA-TCara Operations Ltd $24.10
CVE-TCenovus Energy Inc $12.62
CHE.UN-TChemtrade Logistics Income Fund $17.72
CM-TCIBC $106.01
CRH-TCRH Medical Corp $7.61
DRT-TDIRTT Environmental Solutions $5.80
ENF-TEnbridge Income Fund Holdings Inc $32.75
ECI-TEnerCare Inc $18.19
ESI-TEnsign Energy Services Inc $7.01
FCR-TFirst Capital Realty Inc $19.60
GS-TGluskin Sheff + Associates Inc $14.93
HR.UN-TH&R Real Estate Investment Trust $21.89
HBM-THudBay Minerals Inc $7.12
III-TImperial Metals Corp $5.23
IAG-TIndustrial Alliance Insurance & Financial Services $49.99
IPL-TInter Pipeline Ltd $26.34
JE-TJust Energy Group Inc $7.21
MDA-TMacDonald Dettwiler & Associates Ltd $62.74
MRT.UN-TMorguard Real Estate Investment Trust $14.85
MTY-TMTY Food Group Inc. $45.98
POT-TPotash Corp of Saskatchewan Inc $21.62
REI.UN-TRioCan Real Estate Investment Trust $25.20
SCL-TShawCor Ltd $31.08
XSR-TSirius XM Canada Holdings Inc $4.52
SNC-TSNC-Lavalin Group Inc $50.57
STN-TStantec Inc $30.47
SPB-TSuperior Plus Corp $11.95
SXP-TSupremex Inc $4.70
TGZ-TTeranga Gold Corp $3.15
TV-TTrevali Mining Corp $1.06
TRQ-TTurquoise Hill Resources Ltd $3.46
UNS-TUni-Select Inc $29.24
VCM-TVecima Networks Inc $10.01
VET-TVermilion Energy Inc $44.87
WTE-TWestshore Terminals Investment Corp $19.09
WIN-TWi-LAN Inc $1.88
Y-TYellow Pages Ltd $4.38

Source: Bloomberg

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