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Tuesday’s TSX breakouts: An industry leader breaking out to the upside on huge volume

On Monday, major North American stock markets were under pressure.

In the U.S., the Dow Jones Industrial Average declined 0.17 per cent, the S&P 500 index fell 0.10 per cent, and the Nasdaq composite index lost 0.52 per cent.

In Canada, the S&P/TSX composite index fell 89 points or 0.58 per cent. There were 97 securities in the TSX Index that advanced, 145 securities declined in value, and eight stocks closed the day unchanged.

Year-to-date, the TSX Index is up 0.63 per cent. In the U.S., the Dow Jones Industrial Average is up 7.45 per cent, the S&P 500 index has increased 8.51 per cent, and the Nasdaq composite has rallied 14.72 per cent.

On today's TSX Breakouts report, there are just nine 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 stock that appears on the positive breakouts list, breaking out to the upside on very high volume – a very bullish move from a technical perspective. This is a stock that is in a multi-year uptrend and any pause in the positive price momentum has proven to be a buying opportunity. The company is an industry leader with a solid growth profile. Recently, the company completed a five-for-one stock split making the share price more affordable for investors. The security highlighted below is CCL Industries Inc. (CCL.B-T).

Many institutional portfolio managers view the stock as a safe haven as CCL is categorized in the Materials sector. For institutional money managers who must have an investment in the Materials sector, CCL Industries provides managers with a place to invest their money without being exposed to potentially volatile commodity prices. A brief outline is provided below that may serve as a springboard for further fundamental research.

The company

Toronto-based CCL Industries is an industry leader. It is the largest label company in the world and has operations in 36 countries. CCL provides services to large multinational customers through its five business segments: CCL, Avery, Checkpoint, Innovia, and CCL Container.

Dividend policy

The company pays its shareholder a small dividend of 11.5 cents per share, or 46 cents per share yearly. This equates to an annualized dividend yield of 0.68 per cent. For the past several years, management has announced a dividend increase annually, in February, along with its fourth-quarter financial results. This past February, the company declared a 15 per cent dividend increase to its present level.

Analysts' recommendations

There are nine analysts covering this company, of which six analysts have buy recommendations, two analysts have hold recommendations, and one analyst (from EVA Dimensions) has an 'underweight' recommendation.

The nine firms providing research coverage are as follows in alphabetical order: BMO Capital Markets, CIBC World Markets, EVA Dimensions, GMP, KeyBanc Capital Markets, Laurentian Bank Securities, Macquarie, Scotia Capital, and TD Securities.

Financial forecasts

The consensus earnings before interest, taxes, depreciation and amortization (EBITDA) estimates are $997-million in 2017, rising 9 per cent to $1.086-billion in 2018. The Street is forecasting earnings per share of $2.60 in 2017, climbing 17 per cent to $3.03 in 2018.

Earnings expectations have been increasing. To illustrate, three months ago, the consensus EBITDA estimates for 2017 and 2018 were $978-million and $1.064-billion, respectively. The Street was forecasting earnings per share of $2.58 in 2017 and $2.88 in 2018.

Valuation

According to Bloomberg, the stock is trading at a price-to-earnings (P/E) multiple of 22.3 times the 2018 consensus estimate, near its peak multiple of approximately 23.5 times looking back over the past five years. To put this in context, a 23.5 times forward P/E multiple would equate to a target price of approximately $71, or just over 5 per cent upside. On an enterprise value-to-EBITDA basis, the stock is trading at a multiple of 13.1 times the 2018 consensus estimate, at a peak multiple looking back over the past five years. On a historical basis, the stock is not cheap.

Individual target prices provided by eights analysts are as follows in numerical order: $65, two at $66, $67, $68, two at $69, and $71. The average one-year target price is $67.57, implying the stock may be fully valued.

Revised recommendations

Last month, eight analysts revised their target prices with mixed expectations. In May, Stephen MacLeod from BMO Capital Markets lifted his target price by $2 to $69. Elizabeth Johnston from Laurentian Bank Securities took her target price up $5 to $71, the high on the Street. Scott Fromson from CIBC World Markets took his target price up to $68 from $64. Adam Josephson from KeyBanc Capital Markets raised his target price by $5 to $67. Scott Neville from Scotia Capital bumped his target price higher by a dollar to $65.

However, three analysts reduced their calls. Michael Glen, the analyst from Macquarie, downgraded the stock to a "neutral" recommendation from an "outperform" but increased his target price to $66 from $64. Damir Gunja from TD Securities also lowered his recommendation to a "hold" from a "buy" but maintained his $66 target price, and Timothy Stanish from EVA Dimensions cut the stock to an "underweight" recommendation from a "hold" recommendation.

Insider transaction activity

Last month, two insiders were sellers in the public market.

On May 15, Günther Birkner, president of food and beverage worldwide and the healthcare and specialty business, exercised his options and the same day sold the corresponding number of shares (12,500), leaving a portfolio balance of 33,178 shares.

On May 10, Lalitha Vaidyanathan, senior vice-president of finance, information technology, and human resources, exercised her options and the same day sold the corresponding number of shares (6,250), leaving a remaining portfolio balance of 18,408 shares.

Chart watch

The stock's long-term uptrend remains intact.

The stock is breaking out to the upside on unusually high trading volume – a very bullish move from a technical perspective as its reflects strong demand. On Monday, the share price rallied over 3 per cent with over 2-million shares traded. This is well above the three-month historical daily average trading volume of approximately 460,000 shares.

The share price may continue to rally higher to just under $70, its next area of overhead resistance.

The relative strength index (RSI) suggests the stock is in overbought territory with an RSI reading of 77. Generally, a reading at or above 70 indicates an overbought condition. On a pullback, the stock has initial support between $63 and $65. Failing that, there is support just above $60, near its 50-day moving average (at $61.62).

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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 links to all reports that I write, follow me on Twitter at @jennifer_dowty

Positive Breakouts12-Jun
APR.UN-TAutomotive Properties REIT $11.56
CCL.B-TCCL Industries Inc $67.45
DH-TDH Corp $25.50
FIH.U-TFairfax India Holdings Corp. $14.91
FCR-TFirst Capital Realty Inc $20.76
HRX-THeroux-Devtek Inc $14.02
IMG-TIAMGOLD Corp $6.92
PDL-TNorth American Palladium Ltd $6.08
SMU.UN-TSummit Industrial Income REIT $7.20
Negative Breakouts
HOT.UN-TAmerican Hotel Income Properties REIT LP $10.16
ADW.A-TAndrew Peller Ltd $10.64
AUP-TAurinia Pharmaceuticals Inc $8.00
BDI-TBlack Diamond Group Ltd $2.94
CTC.A-TCanadian Tire Corp Ltd $148.76
ELD-TEldorado Gold Corp $3.62
ENB-TEnbridge Inc $51.15
ENGH-TEnghouse Systems Ltd $52.40
FFH-TFairfax Financial Holdings Ltd $580.60
G-TGoldcorp Inc $18.00
GC-TGreat Canadian Gaming Corp $23.42
JE-TJust Energy Group Inc $6.88
MND-TMandalay Resources Corp $0.49
NPI-TNorthland Power Inc $22.99
NDQ-TNovadaq Technologies Inc $8.70
PTM-TPlatinum Group Metals Ltd $1.36
P-TPrimero Mining Corp $0.49
RET.A-TReitmans Canada Ltd $4.50
SCL-TShawCor Ltd $29.18
TGL-TTransGlobe Energy Corp $1.77
VCM-TVecima Networks Inc $9.90
YRI-TYamana Gold Inc $3.31

Source: Bloomberg

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