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Wednesday’s TSX breakouts: A stock with growth, 10 buy calls and a 25% gain forecast

On Tuesday, major U.S. stock markets rallied, recovering Monday's losses, while the Canadian benchmark was relatively flat.

In the U.S., the Dow Jones Industrial Average increased 0.44 per cent, the S&P 500 index gained 0.45 per cent, and the Nasdaq composite index advanced 0.73 per cent.

In Canada, the S&P/TSX composite index lost 4 points or 0.03 per cent. There were 139 securities in the TSX Index that advanced, 106 securities declined in value, and five stocks closed the day unchanged.

Year to date, the TSX Index is up 0.60 per cent. In the U.S., the Dow Jones Industrial Average is up 7.92 per cent, the S&P 500 index has increased exactly 9 per cent, and the Nasdaq composite has rallied 15.55 per cent.

On today's TSX Breakouts report, there are 18 stocks on the positive breakouts list (stocks with positive price momentum), and 17 stocks are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a stock that has been an underperformer but according to analysts, the share price is expected to make a comeback. The Street is anticipating the stock will deliver a price return of 25 per cent over the next year, and the stock has 10 buy recommendations. The security highlighted below is SNC-Lavalin Group Inc. (SNC-T).

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

The company

Montreal-based SNC-Lavalin is an engineering and construction company servicing clients across four market segments: oil and gas, mining and metallurgy, infrastructure and construction, and power.

The company's revenues are diversified across industry segment and geographies. In 2016, its revenue breakdown by industry was as follows: 44 per cent oil and gas, 30 per cent infrastructure, 19 per cent power, 4 per cent mining, and 3 per cent capital. In terms of the company's revenue geographical composition, 52 per cent stemmed from North America (41 per cent from Canada, 11 per cent from the U.S.), 22 per cent from the Middle East and Africa, 19 per cent from the Asia-Pacific region, 5 per cent from Europe, 1 per cent from Latin America, and 1 per cent from other regions.

On April 20, management announced it was acquiring U.K.-based WS Atkins plc, a provider of consultant services in design, engineering and project management, complementing SNC's existing operations. This is a sizeable acquisition as Atkins has roughly 18,000 employes worldwide, generating revenues of approximately £2-billion in 2016. Management anticipates the acquisition will provide approximately $120-million of cost synergies by the end of the first year. The company financed this acquisition through a bought deal, issuing subscription receipts at a price of $51.45 per subscription receipt.

Contracts wins announced on large-scale infrastructure projects may serve as potential catalysts for the stock.

At the beginning of May, on the first-quarter conference call, Neil Bruce, the chief executive officer, president and director, commented on the company's pipeline of potential contract wins stating, "Our main focus is very much around rail and transit, which is our specialty, and that, in the last count, I think (there were) 22 Canadian rail and transit opportunities that were in our business development hopper…We're in the shortlist effectively, either the last two or the last three on at least five and we would expect that these are all capable, might not be awarded this year, but they're all capable of being awarded this year and we would hope to win our fair share. So I'd be really disappointed if we didn't win at least two."

Back in March, on the fourth-quarter earnings conference call, Mr. Bruce was more specific noting the following pipeline opportunities, "We are in the short list on Gordie Howe (bridge project), George Massey (tunnel project), Finch West LRT (light rail transit project), the Montreal LRT (light rail transit project), there's a next phase on Ottawa, just to name a few."

Dividend policy

Management is firmly committed to its dividend and has increased its dividend for the past 16 consecutive years. Most recently, in March 2017, management announced a 5 per cent dividend hike, raising its quarterly dividend to 27.3 cents per share, or $1.092 per share yearly. This equates to an annualized dividend yield of 2.1 per cent.

Analysts' recommendations

The firm is widely covered by the Street. There are 14 analysts that cover this company, of which 10 analysts have buy recommendations and four analysts have hold recommendations.

Financial forecasts

The consensus earnings before interest, taxes, depreciation and amortization (EBITDA) estimates are $756-million in 2017, rising 44 per cent to $1.09-billion in 2018. The Street is forecasting earnings per share of $2.12 in 2017, climbing 36 per cent to $2.88 in 2018.

Earnings expectations have been increasing, particularly for 2018, due to the announced acquisition of WS Atkins plc. To illustrate, three months ago, the consensus EBITDA estimates for 2017 and 2018 were $695-million and $772-million, respectively. The Street was forecasting earnings per share of $2.13 in 2017 and $2.45 in 2018.

Valuation

Many analysts value the stock on a sum-of-the-parts basis. The average one-year target price is $66.30, implying the stock may rally 25 per cent over the next 12 months. Individual target prices provided by 11 analysts are as follows in numerical order: $58, $61, $62, two at $64, $66, two at $68, two at $70, and $73.

Revised recommendations

Last month, two analysts revised their target prices higher. In May, Frederic Bastien from Raymond James took his target price up to $68 from $63, and Jacob Bout from CIBC World Markets lifted his target price by $1 to $62.

Insider transaction activity

There have only been two trades reported by insiders year-to-date, a purchase and a sale.

Last month, on May 11, Chantel Sorel, managing director - capital, exercised her options and that same day sold the corresponding number of shares (1,200) at an average price per share of $53.42, eliminating her portfolio position.

On March 13, Alexander (Sandy) Taylor, president of SNC's power sector, purchased 4,100 shares, taking this portfolio's position up to 12,625 shares.

Chart watch

The stock's chart is unimpressive at this point in time.

The stock has been a laggard in the S&P/TSX composite industrials sector, declining 8 per cent year-to-date, while the sector is up 11 per cent.

For the past year, the share price has traded in a range principally between $51 and $58.

In terms of key resistance and support levels, the share price is approaching initial overhead resistance at $53.27, where its 50-day moving average lies. After that, there is a ceiling of resistance around $55, close to its 200-day moving average (at $54.74), and then just under $60. Looking back over the last six years, the share price has peaked just below the $60 level, failing to break and above this ceiling of resistance. On price weakness, there is initial downside support around $50, and failing that, around $45.

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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 at @jennifer_dowty

TSX breakouts

Positive BreakoutsJune 13 close
BOS-TAirBoss of America Corp $13.01
CNE-TCanacol Energy Ltd $4.16
CJT-TCargojet Inc $48.35
CCL.B-TCCL Industries Inc $67.88
DNA-TDalradian Resources Inc. $1.68
DRG.UN-TDream Global REIT $10.65
ECN-TECN Capital Corp. $3.97
FIH.U-TFairfax India Holdings Corp. $15.00
FCR-TFirst Capital Realty Inc $20.83
HRX-THeroux-Devtek Inc $14.07
IMG-TIAMGOLD Corp $7.18
ITP-TIntertape Polymer Group Inc $24.42
KEY-TKeyera Corp $42.19
KL-TKirkland Lake Gold Inc $11.27
PBH-TPremium Brands Holdings Corp $95.68
SMU.UN-TSummit Industrial Income REIT $7.23
WPRT-TWestport Innovations Inc $2.32
WSP-TWSP Global Inc $52.03
Negative Breakouts
ABX-TBarrick Gold Corp $21.54
CTC.A-TCanadian Tire Corp Ltd $148.10
ENGH-TEnghouse Systems Ltd $52.29
XTC-TExco Technologies Ltd $10.87
FFH-TFairfax Financial Holdings Ltd $570.64
GH-TGamehost Inc $9.40
JE-TJust Energy Group Inc $6.79
DR-TMedical Facilities Corp $15.46
MRD-TMelcor Developments Ltd $15.41
NPI-TNorthland Power Inc $22.73
NDQ-TNovadaq Technologies Inc $8.44
OTEX-TOpen Text Corp $43.08
SAP-TSaputo Inc $42.52
TOY-TSpin Master Corp. $37.28
TECK.B-TTeck Resources Ltd $23.38
TGL-TTransGlobe Energy Corp $1.74
TOS-TTSO3 Inc $2.82

Source: Bloomberg

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