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Monday’s TSX breakouts: A security with a 17% targeted return, including its 4.9% yield

On today's TSX Breakouts report, there are 24 stocks on the positive breakouts list (stocks with positive price momentum), and 22 stocks are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a security that appeared on the negative breakouts list last week with the unit price hitting a 52-week low. We last featured the security in the Breakouts report several months ago, at the end of January. Since then, the unit price is relatively unchanged. The unit price had been relatively stable up, hovering in a range principally between $14.50 and $15.50 from early 2016 until June, 2017. However, several weeks ago, as speculation grew that the Bank of Canada was going to raise interest rates, interest sensitive securities, including this one, came under pressure. For investors seeking stable income (a yield of 4.9 per cent) combined with modest growth, the recent price weakness may represent an attractive buying opportunity. The consensus target price suggest a potential total return of 17 per cent over the next year. The security highlighted below is CT Real Estate Investment Trust (CRT.UN-T).

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

The Company

CT REIT owns income-producing commercial properties, with Canadian Tire stores being its major, stable tenant representing over 90 per cent of annualized base minimum rent. The REIT's portfolio consists of over 300 properties located across the country. CT REIT has average annual rent increases built into the property leases at Canadian Tires stores of 1.5 per cent, providing the REIT with predictable same-store net operating income growth. Also positive, in addition to the annual rent escalations, CT REIT has long-term leases.

Before the market opened on May 9, CT REIT reported solid first quarter financial results that were in-line with expectations. The REIT reported funds from operations (FFO) of 28 cents per unit, up from 26 cents per unit reported during the same period last year. Adjusted funds from operations (AFFO) came in at 23 cents per unit, up from 21 cents reported last year. Same property net operating income increased 2.5 per cent, and occupancy was 99.7 per cent. Book value per unit was $12.73 as at March 31.

CT REIT continues to steadily expand. The company completed four vend-ins from Canadian Tire during the quarter, and announced plans for four new investments in the earnings release. The REIT's balance sheet is strong providing CT REIT with the financial flexibility to fund its continued growth. At the end of the third quarter, the debt-to-gross book value was 47 per cent.

The REIT is scheduled to report its second quarter financial results after the market closes on Aug. 2. The consensus FFO per unit estimate is 28 cents.

Distribution Policy

The REIT pays unitholders a monthly distribution 5.833 cents per unit or 70 cents per unit on a yearly basis. This equates to an annualized yield of 4.9 per cent.

The AFFO payout ratio was 77 per cent in the first quarter, down from 88 per cent reported during the same period last year, suggesting there is room for a future distribution increase. Its last distribution increase was announced in December 2016, which amounted to a 3 per cent increase.

The payout ratio was 79 per cent in 2016.

Analysts' Recommendations

According to Bloomberg, 11 analysts cover the REIT, two analysts have buy recommendations and nine analysts have hold recommendations.

The 11 firms providing research coverage are as follows in alphabetical order: BMO Capital Markets, Canaccord Genuity, CIBC World Markets, Desjardins Securities, GMP, National Bank Financial, Raymond James, RBC Capital Markets, Scotia Capital, TD Securities and Veritas Investment Research.

Financial Forecasts

Steady growth is forecast for CT REIT. The consensus FFO per unit estimate is $1.13 for 2017, up from $1.07 reported in 2016, and forecast to climb to $1.17 in 2018. The consensus AFFO per unit estimates are 92 cents in 2017 and 97 cents in 2018.

Financial forecasts have been stable. For instance, three months ago, the consensus FFO per unit and AFFO per unit estimates were exactly the same as the current levels, and at the beginning of the year, the consensus FFO per unit estimates were $1.12 for 2017 and $1.16 for 2018. The AFFO per share estimates were 92 cents for 2017 and 97 cent for 2018.

Valuation

According to Bloomberg, the REIT is trading at a price-to-FFO multiple of 12.2 times the 2018 consensus estimate. This valuation is below its three-year historical average of 12.5 times and below its peak multiple of approximately 14 times during this period. Over the past three years, the REIT's valuation has troughed around an 11.5 times multiple, suggesting the downside risk for the unit price is potentially around $13.50.

The consensus one-year target price is $15.93, suggesting the unit price has 12 per cent upside potential over the next 12 months. In combination with the yield, this would represent a potential total return of 17 per cent.

Analysts' target prices range are quite concentrated, ranging from a low of $15.50 to a high of $16.75. Individual target prices supplied by 10 firms are as follows in numerical order: three at $15.50, $15.75, $15.80, three at $16, $16.50 and $16.75.

Revised Recommendations

Recommendations and target prices have been stable. There was one recent revision, albeit minor, to a target price. In May, Jimmy Shan, the analyst at GMP, tweaked his target price higher by 25 cents to $15.50.

Insider Transaction Activities

Year-to-date, there has only been one reported transaction by an insider.  On June 22, Kevin Salsberg, the senior vice-president – real estate, acquired 1,300 units on an indirect ownership basis, at an average price of $14.20 per unit.

Chart Watch

Year-to-date, the unit price is down 4.6 per cent, and last week the unit price closed at a 52-week low. However, this weakness has been realized over the past few weeks. On June 12, the unit price closed at $15.01, and approximately one month later, on July 14, had drifted down 5 per cent to close at $14.25.

In terms of key resistance and support levels, the unit price has strong downside support around $14. Failing that, there is support around $13. On a recovery, there is overhead resistance around $15, and after that, around $15.50.

The relative strength index is at 43, suggesting the units are not yet in oversold territory. Generally, a reading of 30 or below indicates an oversold condition.

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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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Monday's TSX Breakouts

Price
Positive Breakouts14-Jul
ADN-TAcadian Timber Corp. $19.10
AGF.B-TAGF Management Ltd $7.01
AXY-TAlterra Power Corp. $6.02
AI-TAtrium Mortgage Investment Corp. $12.31
ATA-TATS Automation Tooling Systems Inc $13.42
CWB-TCanadian Western Bank $27.89
CHR-TChorus Aviation Inc $7.72
CCA-TCogeco Communications Inc $83.71
CGO-TCogeco Inc $70.36
CIGI-TColliers International Group Inc $76.12
FIH.UN-TFairfax India Holdings Corp. $16.85
HSM-THelius Medical Technologies Inc. $2.20
ITP-TIntertape Polymer Group Inc $25.28
LNF-TLeon's Furniture Ltd. $18.12
MFC-TManulife Financial Corp $25.23
NA-TNational Bank of Canada $55.63
NCC.A-TNewfoundland Capital Corp Ltd $11.10
QBR.B-TQuebecor Inc $44.23
SBB-TSabina Gold & Silver Corp $2.16
SSL-TSandstorm Gold Ltd $5.37
SNC-TSNC-Lavalin Group Inc $58.04
TOS-TTSO3 Inc $3.21
WFT-TWest Fraser Timber Co Ltd $62.88
WJA-TWestJet Airlines Ltd $25.79
Negative Breakouts
AGI-TAlamos Gold Inc $8.39
ATH-TAthabasca Oil Corp $0.87
CG-TCenterra Gold Inc $6.63
CGX-TCineplex Inc $50.14
CRH-TCRH Medical Corp $4.74
ELD-TEldorado Gold Corp $3.04
GMP-TGMP Capital Inc $3.05
GUY-TGuyana Goldfields Inc $5.27
IRG-TImvescor Restaurant Group Inc. $3.50
LUG-TLundin Gold Inc $4.96
MRD-TMelcor Developments Ltd $14.05
MRT.UN-TMorguard Real Estate Investment Trust $14.12
NAL-TNewalta Corp $1.26
PKI-TParkland Fuel Corp $27.92
PGF-TPengrowth Energy Corp $0.92
PHX-TPHX Energy Services Corp $2.02
PD-TPrecision Drilling Corp $3.75
X-TTMX Group Ltd $68.65
TNT.UN-TTrue North Commercial REIT $6.09
VLN-TVelan Inc $17.37
WCN-TWaste Connections Inc. $81.62
WRG-TWestern Energy Services Corp $1.51

Source: Bloomberg

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