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Wednesday’s TSX breakouts: Takeover speculation continues to lift this company’s share price higher

On today's TSX Breakouts report, there are 34 stocks on the positive breakouts list (stocks with positive price momentum), and just 12 stocks are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a stock that appears on the positive breakouts list. The share price continues to rally on takeover speculation. Highlighted below is a stock that may appeal to short-term speculative investors. The security discussed today is Aecon Group Inc. (ARE-T).

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

The company

Aecon is a construction and infrastructure development company serving both the private and public sectors. The company operates in three core market segments: energy, infrastructure, and mining.

This stock is rising on speculation that it may soon be acquired. On Aug. 25, management issued a press release confirming that the company, "has engaged BMO Capital Markets and TD Securities to explore a potential sale of the company."

Several months ago, in late-June, Eric Rosenfeld, president and chief executive officer of New York-based activist investment firm Crescendo Partners L.P., was appointed to Aecon's board of directors. Mr. Rosenfeld has a history of unlocking shareholder value for investors so the recent announcement that the company has engaged financial advisors should not come as a surprise. Mr. Rosenfeld holds 214,200 shares in an account in which he has indirect ownership (Crescendo Partners III, L.P.).

Last November, the company announced the departure Terrance McKibbon, the company's former president and chief executive officer. John Beck, the executive chairman, stepped in to assume the role as interim CEO until a suitable person was found.

Looking at the company's fundamentals, after the market closed on July 27, the company reported better-than-expected second quarter financial results. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $33-million, above the consensus estimate of $28-million. The company reported an EBITDA margin of 4.8 per cent, up from 3.5 per cent during the same period last year. Backlog stood at $4.4-billion as at June 30, unchanged from the end of the first quarter.

Dividend policy

The company has announced a dividend increase in March of every year since 2012. Last March, the board of director's approved a 8.7 per cent increase in its annual dividend, raising it to 50 cents from 46 cents.

The company pays shareholders a quarterly dividend of 12.5 cents per share, or 50 cents per share on a yearly basis. This equates to an annualized yield of 2.8 per cent.

Analysts' recommendations

There are 12 firms that provide research coverage on the company, of which 11 analysts have buy recommendations and one analyst (from EVA Dimensions) has a 'hold' recommendation.

The 12 firms providing research coverage on Aecon are as follows in alphabetical order: AltaCorp Capital, Canaccord Genuity, CIBC World Markets, Desjardins Securities, EVA Dimensions, GMP, Industrial Alliance Securities, National Bank Financial, Paradigm Capital, Raymond James, Scotia Capital, and TD Securities.

Financial forecasts

The consensus EBITDA estimates are $179-million in 2017, increasing 17 per cent to $209-million in 2018. The Street is forecasting earnings per share of 63 cents in 2017 rising to $1.05 the following year.

Forecasts have been relatively stable over recent months. For instance, three months ago, the Street was forecasting EBITDA of $174-million in 2017 and $192-million in 2018.

Valuation

The stock is commonly valued on an enterprise value-to-EBITDA multiple basis.

According to Bloomberg, the one-year consensus target price is $20.05, suggesting there is over 12 per cent upside in the share price over the next 12 months. Target prices are quite concentrated, ranging from a low of $19 to a high of $21. Individual target prices provided by 11 firms are as follows in numerical order: three at $19, four at $20, $20.50, and three at $21.

Revised recommendations

Last month, Anthony Zicha, the analyst from Scotia Capital, took his target price up to $21 from $19.

Insider transactions

The most recent sizeable transaction reported by an insider occurred on May 19. Susan Wolburgh Jenah, who sits on the board of directors, purchased 2,000 shares for an account in which she has indirect ownership (107738 Ontario Inc.) at an average price per share of $15.20, initiating a portfolio position.

Chart watch

Year-to-date, the share price is up nearly 17 per cent, making Aecon one of the top performing stocks in the S&P/TSX composite industrials sector index.

Daily average trading volume has increased sharply since management announced it was exploring a potential sale of the company. For instance, on Tuesday, over 1.1-million shares traded, well above the three-month historical daily average trading volume of just over 500,000 shares.

In terms of key resistance and support levels, the stock is has initial overhead resistance around the $19 level. However, the upside could be higher in an acquisition scenario. Looking at the downside, as long as the stock is 'in play' of potentially being acquired, there is a floor of support. However, if takeover speculation is removed, the share price could fall back to around $15, close to where the stock was trading at prior to becoming a speculative takeover target.

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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

Positive BreakoutsSept. 12 close
ARE-TAecon Group Inc $17.82
AVO-TAvigilon Corp $17.53
BLDP-TBallard Power Systems Inc $4.52
CFW-TCalfrac Well Services Ltd $4.07
CWB-TCanadian Western Bank $30.90
WEED-TCanopy Growth Corp. $10.10
CJT-TCargojet Inc $50.75
CG-TCenterra Gold Inc $9.22
CHR-TChorus Aviation Inc $8.31
EIF-TExchange Income Corp $33.67
FAH.U-TFairfax Africa Holdings Corp. $13.19
GEI-TGibson Energy Inc $18.10
IDG-TIndigo Books & Music Inc $16.38
INE-TInnergex Renewable Energy Inc $15.59
ITX-TIntertain Group Ltd $12.10
LB-TLaurentian Bank of Canada $56.86
MRE-TMartinrea International Inc $11.09
NA-TNational Bank of Canada $57.69
OSB-TNorbord Inc $46.75
NVA-TNuVista Energy Ltd $6.84
ORL-TOrocobre Ltd. $4.33
RIC-TRichmont Mines Inc $12.10
RUS-TRussel Metals Inc $27.57
SEC-TSenvest Capital $219.00
S-TSherritt International Corp $1.20
SHOP-TShopify Inc. $146.69
RAY.A-TStingray Digital Group Inc. $9.75
SMU.UN-TSummit Industrial Income REIT $7.43
TKO-TTaseko Mines Ltd $2.48
TCL.A-TTranscontinental Inc $26.95
TFII-TTransForce Inc $30.90
TET-TTrilogy Energy Corp $5.78
WEF-TWestern Forest Products Inc $2.72
WPRT-TWestport Innovations Inc $3.52
Negative Breakouts
BOS-TAirBoss of America Corp $11.55
AI-TAtrium Mortgage Investment Corp. $11.90
BEI.UN-TBoardwalk Real Estate Investment Trust $39.32
GRT.UN-TGranite Real Estate Investment Trust $49.24
MDI-TMajor Drilling Group International Inc $7.03
MND-TMandalay Resources Corp $0.32
NAL-TNewalta Corp $0.74
PEY-TPeyto Exploration & Development Corp $19.69
P-TPrimero Mining Corp $0.09
ZZZ-TSleep Country Canada $31.92
SII-TSprott Inc $2.10
TGL-TTransGlobe Energy Corp $1.42

Source: Bloomberg

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