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Outperforming stock with five buy calls and 55% sales growth forecast

On today's TSX Breakouts report, there are 16 stocks on the positive breakouts list (stocks with positive price momentum), and 40 stocks are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a stock that was last featured in late February. The share price subsequently rallied 70 per cent to a record high on May 29 before retreating. This is a stock that has delivered solid top line growth, which is expected to continue, revenue is forecast to jump 55 per cent in 2017.  Over recent weeks, the stock price has declined 13 per cent and the recent price weakness may represent a buying opportunity for growth investors. The security highlighted below is Savaria Corp. (SIS-T).

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

The Company

Prior to its recently completed acquisition of South Carolina-based Span-America Medical Systems Inc., Laval, Québec-based Savaria had two core operating divisions. The Accessibility segment, which manufactures and markets stairlifts, wheelchair lifts, and elevators for residential and commercial use, and the Adapted Vehicles segment, which reconfigures minivans to make them wheelchair accessible. In 2016, the Accessibility segment represented 80 per cent of the company's total revenue with the balance, 20 per cent, from the Adapted Vehicles segment. In terms of geographic revenue breakdown, in 2016, 51 per cent of the company's total revenue was from the U.S., 42 per cent was from Canada, with the balance from other regions.

With the recently completed acquisition of Span-America, Savaria's revenue will spike higher and its revenue breakdown and geographical exposures will shift. Span-America is a manufacturer of therapeutic support surfaces and pressure management products to the medical industry with products such as therapeutic mattress systems and seating products. This will diversify Savaria's revenue mix and increase the company's U.S. exposure. In 2016, Span-America reported sales of $61.4-million (U.S.) or $83.8-million (Canadian), and earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $7.1-million (U.S.). The acquisition was funded by a bought deal financing. Savaria raised $38-million through the issuance of 2.76-million subscription receipts at a price of $13.90 per subscription receipt.

Savaria has a solid growth track record. In 2016, revenue increased 26 per cent to $119.7-million. In 2015, revenue climbed 15 per cent to $91.3-million. For 2017, the consensus revenue estimate is $187-million.

The company is well positioned to benefit from the aging population. In the company's recent Management's Discussion and Analysis, the aging baby boomer phenomena was highlighted, "According to a 2016 Canadian census, 5.9 million people representing 16.9 per cent of Canada's population were 65 years and older compared with 5 million or 14.4 per cent at the last census in 2011. These numbers are expected to continue rising, with a projected 10.4 million people, or 24 per cent of Canada's population, 65 years and older by 2031 and 12 million, or 26 per cent by 2061. Similar trends, although less pronounced, are noticed in the United States. The population aged 65 and over has increased from 36.2 million in 2004 to 46.2 million in 2014 (a 28 per cent increase) and is projected to increase to 82.3 million, or 21.7 per cent of the population by 2040 and to 98 million by 2060."

After the market closed on May 11, the company reported first quarter financial results relatively in-line with expectations. Revenue came in at $31.1-million, just shy of the consensus estimate of $32.9-million. Adjusted EBITDA was $5.1-million, slightly below the consensus estimate of $5.7-million. Reported earnings per share was 9 cents, a penny below expectations. The following trading session, the share price inched higher by a few cents.

The company is scheduled to report its second-quarter financial results in early August.  The Street is anticipating revenue of $39-million, EBITDA of $7.2-million, and the consensus earnings per share estimate is 12 cents.

Dividend Policy

The company currently pays its shareholders a quarterly dividend of 6.5 cents per share, or 26 cents on a yearly basis. This equates to an annualized dividend yield of 1.7 per cent.

Management is committed to returning capital to its shareholders. For the past two years, during the month of November, management has announced dividend increases. Most recently, on Nov. 2, 2016 the company declared a 30 per cent increase to its quarterly dividend, raising it to 6.5 cents per share from 5 cents per share. Prior to that, on Nov. 5, 2015, management announced a 25 per cent dividend hike, raising the quarterly dividend to 5 cents per share from 4 cents per share.

Analysts' Recommendations

This small cap industrial stock, with a market capitalization of $623-million, is covered by five analysts, of which, all five analysts have buy recommendations.

The five firms providing research coverage are as follows in alphabetical order: Cormark Securities, GMP, Laurentian Bank Securities, National Bank Financial, and PI Financial Corp.

Financial Forecasts

The Street is forecasting steady growth for the company. The consensus revenue estimate is $186.6-million in 2017, up 55 per cent from $119.7-million reported in 2016, and forecast to reach $258-million in 2018. The consensus EBITDA estimates are $31-million in 2017 and $44-million in 2018. The consensus earnings per share (EPS) estimates are 49 cents in 2017 and anticipated to reach 68 cents the following year.

Financial forecasts have been steady rising. For instance, four months ago, the consensus revenue estimates were $146-million for 2017 and $172-million for 2018. The Street was forecasting EBITDA of $27-million for 2017 and $34-million for 2018. The consensus EPS forecasts were 49 cents for 2017 and 63 cents the following year.

Valuation

According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 13.2 times the consensus 2018 estimate, above the three-year historical average of 10.5 times but below its peak multiple of approximately 16.7 times reached back in April.

The consensus one-year target price is $17.75, implying the stock price may appreciate 17 per cent over the next 12 months. Individual target prices are as follows in numerical order: $17, $17.25, $17.75, $18.25, and $18.50.

Revised Recommendations

Analysts have made positive revisions to their price targets given the acquisition of Span-America. For instance, in May, Nick Agostino from Laurentian Bank Securities raised his target price by $2.25 to $18.50. Stephen Harris, the analyst at GMP raised his target price to $18.25 from $17. Jason Zandberg from PI Financial lifted his target price to $17.75 from $13. Maggie MacDougall from Cormark Securities took her target price up to $17.25 from $13.50. Lastly, Leon Aghazarian from National Bank Financial raised his target price by $4 to $17.

Insider Transaction Activities

In June, Robert Berthiaume, who recently resigned from his director position on the company's Board of Directors but remains employed with the company as the vice-president of European Affairs, sold 10,000 shares over the course of three trading sessions, at an average price per share above $16. At the end of June, his portfolio held 50,000 shares.

Chart Watch

Year-to-date, the share price is up a stellar 39 per cent; however, after closing at a record high of $17.45 on May 29, the stock price has declined 13 per cent.

Should the negative price momentum persist, there is downside support around the low $14 level.

On a price recovery, there is initial overhead resistance around $16, at its 50-day moving average, and after that around $17.50.

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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.

If you want to receive an automatic link to all reports that I write, follow me on twitter @jennifer_dowty

Wednesday's TSX Breakouts

Price
Positive Breakouts11-Jul
AC-TAir Canada $20.76
AXY-TAlterra Power Corp. $5.84
AI-TAtrium Mortgage Investment Corp. $12.30
CF-TCanaccord Genuity Group Inc $6.32
CCA-TCogeco Communications Inc $83.05
ET-TEvertz Technologies Ltd $18.07
FIH.UN-TFairfax India Holdings Corp. $16.35
LNR-TLinamar Corp $66.89
MDI-TMajor Drilling Group International Inc $8.60
ONEX-TOnex Corp $105.10
QBR.B-TQuebecor Inc $43.60
RCH-TRichelieu Hardware $31.64
SBB-TSabina Gold & Silver Corp $2.13
SNC-TSNC-Lavalin Group Inc $58.03
WEF-TWestern Forest Products Inc $2.46
WJA-TWestJet Airlines Ltd $24.91
Negative Breakouts
ATH-TAthabasca Oil Corp $0.91
ATP-TAtlantic Power Corp $3.02
BCE-TBCE Inc $57.88
BXE-TBellatrix Exploration Ltd $2.90
CAR.UN-TCanadian Apartment Properties REIT $32.25
REF.UN-TCanadian Real Estate Investment Trust $44.44
CSH.UN-TChartwell Retirement Residences $15.02
CHP.UN-TChoice Properties REIT $13.23
CRH-TCRH Medical Corp $6.64
KWH.UN-TCrius Energy Trust $10.00
CRR.UN-TCrombie Real Estate Investment Trust $13.52
DIV-TDiversified Royalty Corp $2.50
GH-TGamehost Inc $9.06
WN-TGeorge Weston Ltd $115.25
GMP-TGMP Capital Inc $3.09
KMP.UN-TKillam Apartment REIT $12.13
L-TLoblaw Cos Ltd $70.80
LUG-TLundin Gold Inc $5.11
MRD-TMelcor Developments Ltd $14.26
MRC-TMorguard Corp. $176.00
NVU.UN-TNorthview Apartment REIT $20.49
NWH.UN-TNorthWest Healthcare Properties REIT $10.39
OGC-TOceanaGold Corp $3.59
PKI-TParkland Fuel Corp $28.31
PHX-TPHX Energy Services Corp $2.08
PD-TPrecision Drilling Corp $3.86
PLI-TProMetic Life Sciences Inc $1.55
QTRH-TQuarterhill Inc. $1.83
RSI-TRogers Sugar Inc $6.04
SAP-TSaputo Inc $39.95
SJR.B-TShaw Communications Inc $27.66
SPB-TSuperior Plus Corp $11.12
T-TTELUS Corp $44.53
TDG-TTrinidad Drilling Ltd $1.80
TNT.UN-TTrue North Commercial REIT $6.11
UNS-TUni-Select Inc $28.00
VET-TVermilion Energy Inc $38.74
WDO-TWesdome Gold Mines Ltd. $2.69
WED-TWestaim Corp. $3.05
WRG-TWestern Energy Services Corp $1.55

Source: Bloomberg

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