On Wednesday, major North American stock markets plunged as the Trump Bump turned into a Trump Dump.
Today, the fears driving Wednesday's stock markets declines appears to have eased.
In the U.S., the Dow Jones Industrial Average fell 1.78 per cent, the S&P 500 index lost 1.82 per cent, and the Nasdaq composite index declined 2.57 per cent.
Turning to Canada, the S&P/TSX composite index plummeted by 270 points, or 1.73 per cent. This was the worst performing day for the TSX index since September 9, 2016. There were only 36 securities in the TSX Index that advanced, 213 securities declined in value, and one stock closed the day unchanged. There was a flight to safety with gold advancing. The VIX Index, commonly referred to as a 'fear gauge', spiked to over 15.
Year to date, the TSX Index is down 0.09 per cent. In the U.S., the Dow Jones Industrial Average is up 4.27 per cent, the S&P 500 index is up 5.28 per cent, and the Nasdaq composite has rallied 11.67 per cent.
On today's TSX Breakouts report, there are 14 stocks on the positive breakouts list (stocks with positive price momentum), and 66 stocks are on the negative breakouts list (stocks with negative price momentum).
Featured today is a company that rallied on Wednesday in spite of the market fallout, and it is not a gold stock. All six analysts who cover the company have buy recommendations on the stock, and the consensus target price suggests 33 per cent upside potential for the share price over the next year. In addition, the company offers investors a 3.8 per cent dividend yield. The security I am referred to is Polaris Infrastructure Inc. (PIF-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Toronto-based Polaris Infrastructure has operations in Latin America. Through its subsidiary, PENSA, it owns and operates a geothermal plant in northwest Nicaragua with a net production capacity of 72 megawatts (MW). Management views Nicaragua as a 'safe' country with political stability. The country's president Daniel Ortega was elected into office in 2007 and re-elected in November 2016 for a five-year term.
The company has several growth opportunities to help expand its cash flows. For instance, management has identified two to three well sites for potential drilling in the second half of 2017. Additionally, management believes there are, "good targets for acquisitions without significant competition" as indicated in their recent investor presentation, including potential acquisitions in other countries.
Dividend policy
In March of last year, management announced the initiation of a quarterly dividend. Since then, the company has announced two dividend increases, the most recent increase was announced a few months ago, in February.
The company pays its shareholders a quarterly dividend of 12 cents (U.S.) per share, or 48 cents per share on a yearly basis. This equates to an annualized dividend yield of approximately 3.8 per cent.
Management targets a payout ratio of between 40 per cent and 60 per cent of cash flow available for distribution.
In the most recent Management's Discussion and Analysis, management hinted at the possibility of further dividend increases in 2017 stating, "The 12 cent dividend per share related to the first quarter of 2017 equates to approximately a 56 per cent payout ratio, which reflects the reduced revenue in the first quarter of 2017 stemming from planned turbine maintenance. Adjusting for the estimated impact of the planned turbine maintenance, payout ratio for the first quarter of 2017 falls to 37 per cent. This payout ratio continues to reflect not only all debt service requirements, but also allows for capital being put aside to finance management's estimate of sustaining capital expenditure, which contemplates drilling of future production and/or injection wells, as well as ongoing steamfield and turbine maintenance. PENSA is not expected to be subject to Nicaragua income taxes until 2022-2023. The board of directors of Polaris Infrastructure remains committed to paying a quarterly dividend and will evaluate further dividend increases later in 2017."
On the earnings conference call, the chief financial officer Shane Downey said, "We have always envisioned growth in our dividend to come firstly from growth in cash flow generation and secondly from a possible increase in payout ratio. This philosophy does continue to hold true and we will evaluate the appropriateness of further dividend increases as we continue to monitor the power-generating performance at the San Jacinto plant."
Analysts' recommendations
There are six firms providing research coverage on this small cap utility stock with a market capitalization of approximately $269-million. The six firms providing research coverage are as follows in alphabetical order: AltaCorp Capital, Canaccord Genuity, Clarus Securities, Cormark Securities, Echelon Wealth Partners, and Raymond James.
All six analysts who cover the stock have buy recommendations, one of which has a 'speculative buy' recommendation (at Echelon Wealth Partners).
Financial forecasts
All financial figures are expressed in U.S. dollars. The consensus revenue estimates are $59-million in 2017, rising to $69-million in 2018. The consensus earnings before interest, taxes, depreciation and amortization (EBITDA) estimates are $49-million in 2017 and $58-million the following year. The consensus cash flow per share estimate is $1.96 in 2017, expanding to $2.46 in 2018.
The company has had slightly negative earnings revisions. For instance, three months ago, the consensus EBITDA estimates were $53-million for 2017 and $61-million for 2018.
Valuation
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 5 times the 2018 consensus estimate, a discount relative to its peers given its exposure to central America.
The average one-year target price is $22.90, suggesting there is 33 per cent upside potential in the share price over the next 12 months. Target prices range from a low of $18.50 to a high of $30. Individual target prices are as follows in numerical order: $18.50, $21, three at $25, and $30.
Revised recommendations
Most recently, in April, Russell Stanley, the analyst at Echelon Wealth Partners, lifted his target price to $25 from $23. In March, Mark Westby from AltaCorp Capital raised his target price to by $2 to $25.
Insider transaction activity
There have been no buying or selling activities reported by members of the board of directors or executive management team so far this year.
Chart watch
This small-cap stock is not a member of the S&P/TSX composite utility index; however, if it was included in the TSX utility index, it would be the third best performing stock year-to-date, behind Algonquin Power & Utilities Corp. (AQN-T) and Boralex Inc. (BLX-T).
Polaris Infrastructure was one of the few companies that saw its share price rally on Wednesday. The stock price was particularly strong at the end of the trading session, spiking approximately 40 cents in the last hour of trading. In addition, the stock rallied on heavy volume with over 465,000 shares traded, well above its three-month historical daily average trading volume of approximately 82,000 shares. Once this heightened volume subsides, the positive price momentum may wane.
Should the positive price momentum pause and the share price retreat, there is initial support around $16. Failing that, there is support between $14.50 and $15. The stock's 200-day moving average is at $15.06 and its 50-day moving average is at $14.50, both moving average are areas of support for the share price.
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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 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.