On today's TSX Breakouts report, there are 66 stocks on the positive breakouts list (stocks with positive price momentum), and 17 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a stock that is on the positive breakouts list.
The stock price is off to a strong start in 2018, rising nearly 4 per cent driven higher by U.S. corporate tax cuts and prospects of higher interest rates. The security highlighted today is Sun Life Financial Inc. (SLF-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Toronto-based Sun Life Financial is an international financial services company that provides insurance, investment products and services through its global operations. As at Sept. 30, the company's assets under management stood at $934-billion.
The company has tailwinds supporting earnings growth such as U.S. tax reforms and rising interest rates.
In a Jan. 12 news release, management estimated that the reduced U.S. corporate tax rate, declining to 21 per cent from 35 per cent, will result in tax savings of approximately $130-million in 2018.
With respect to interest rates, futures contracts suggest there is an 87-per-cent probability that a 25 basis point rate hike will be announced on Wednesday by the Bank of Canada.
The company is expected to report its fourth-quarter financial results after the market closes on Feb. 14. Last quarter, the company reported better-than-expected third-quarter financial results. Underlying earnings per share (EPS) came in at $1.05, ahead of the consensus estimate of $1.01.
The company is dual-listed, trading on the Toronto Stock Exchange and New York Stock Exchange under the same ticker, SLF.
Dividend policy
Management is committed to returning capital to its shareholders, announcing two dividend increases in 2017 and two hikes in 2016.
The company pays its shareholders a quarterly dividend of 45.5 cents per share, or $1.82 per share yearly. This equates to an annualized dividend yield of 3.4 per cent.
The payout ratio was 41 per cent in the third-quarter. Management has a targeted payout ratio of between 40 per cent and 50 per cent over the medium-term.
Analysts' recommendations
Analysts have mixed recommendations on the stock. There are 17 analysts covering the company, of which eight analysts have buy recommendations and nine analysts have hold recommendations.
Revised recommendations
While we are just days into a new year, five analysts have revised their expectations. This week, Mario Mendonca, the analyst from TD Securities, took his target price up to $60 from $54 and upgraded his recommendation to a "buy" from a "hold."
Earlier this month, Paul Holden, the analyst from CIBC Capital Markets, increased his target price to $58 from $55. Doug Young from Desjardins Securities bumped his target price up to $58 from $56. John Aiken from Barclays lifted his target price by $2 to $55. Nigel Dally from Morgan Stanley raised his target price to $56 from $54.
Financial Forecasts
The Street is forecasting earnings per share of $4.11 in 2017. The consensus EPS estimate climbs 8 per cent to $4.42 in 2018. The Street is anticipating EPS to grow over 7 per cent to $4.75 in 2019. Management's medium-term goal is to achieve underlying EPS growth of between 8 per cent and 10 per cent.
Analysts have increased their earnings forecasts in recent months. For instance, four months ago, the consensus EPS estimates were $4.05 for 2017 and $4.28 for 2018.
Valuation
According to Bloomberg, the stock is trading at a price-to-earnings (P/E) multiple of 12.2 times the 2018 consensus estimate, in-line with its five-year historical average multiple of 12.3 times. Over the past five years, the stock has traded at a forward multiple predominately between 10 times and 14 times.
Looking at its peers, shares of Manulife Financial Corp. (MFC-T) are trading at a P/E multiple of 11 times the 2018 consensus estimate. Shares of Great-West Lifeco Inc. (GWO-T) are trading at a forward P/E multiple of 11.6 times and Industrial Alliance Insurance & Financial Services Inc.'s shares (IAG-T) are trading at a forward P/E multiple of 11.3 times.
The consensus one-year target price for Sun Life is $54.78, suggesting the share price is nearly fully valued. Individual target prices range from a low of $50 (at Veritas Investment Research) to a high of $60 (at TD Securities). Individual target prices provided by 13 firms are as follows in numerical order: $50, two at $52, $53, two at $54, two at $56, $55, $57, two at $58, and $60.
Insider transaction activity
The most recent activity in the public markets reported by an insider occurred in November.
On Nov. 20, President and Chief Executive Officer Dean Connor exercised his options and sold the corresponding number of shares (50,042) at an average price per share of $50.3706. His current portfolio position is 86,047 shares.
Chart watch
The share price is off to a strong start in 2018, rising 3.7 per cent.
In terms of key resistance and support levels, the share price faces a major ceiling of resistance between $55 and $56, near its all-time closing high of $55.79 set back in 2007. There is downside support around $50, close to its 50-day moving average (at $51.23).
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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.