On today’s TSX Breakouts report, there are 30 stocks on the positive breakouts list (stocks with positive price momentum), and nine securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a security that analysts believe will deliver solid returns to investors with a 30 per cent gain anticipated and a unanimous buy recommendation. If analysts’ expectations are accurate, this stock could resurface on the positive breakouts list in the future – provided the company can deliver solid financial results.
On a valuation basis, the stock is trading at a significant discount relative to historical levels. After reporting disappointing third-quarter financial results in November, the stock has become a ‘show me’ story. Consequently, the company’s upcoming release of its fourth-quarter financial results combined with management’s outlook for 2019 will likely be the next potential catalyst for stock. Until then, the share price may continue to trade in the mid to upper $30 range.
The security highlighted today is Parkland Fuel Corp. (PKI-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Red Deer, Alta.-based Parkland Fuel Corporation is a marketer of fuel and petroleum products such as gasoline, diesel, propane, and heating oil to residential and business customers across North America.
After the market closed on Nov. 1, the company reported lower-than-expected third-quarter financial results sending the share price plummeting 8 per cent the following trading day. Parkland reported record third-quarter adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $200-million, falling short of the consensus estimate of $214-million. Looking forward, management anticipates 2018 adjusted EBITDA will come in at approximately $775-million (within 5 per cent of this target). On the earnings call, the president and chief executive officer Bob Espey stated, “We're feeling confident that we're trending towards the upper end of guidance.”
The company is expected to report its fourth-quarter financial results in early March. The Street is anticipating the company will report EBITDA of $218-million.
Dividend policy
Management is committed to its dividend policy. The company has announced annual dividend increases in March of every year since 2013. The company pays its shareholders a monthly dividend of 9.78 cents per share, or $1.1736 per share on a yearly basis. This equates to an annualized dividend yield of 3.1 per cent.
The company provides shareholders with the option of participating in the enhanced dividend reinvestment plan, allowing shareholders to purchase shares with their cash dividends at a 5 per cent discount to the daily volume weighted average price on the day the dividend is payable.
During the first nine months of 2018, the adjusted dividend payout ratio was 46 per cent (based on adjusted distributable cash flow), suggesting there is room for future dividend increases.
Analysts’ recommendations
This mid-cap stock with a market capitalization of $5.4-billion is actively covered by seven analysts on the Street. Since the company reported its third-quarter financial results on Nov. 1, all seven analysts have issued buy recommendations on the stock.
The firms providing recent research coverage on the company are as follows in alphabetical order: Canaccord Genuity, CIBC Capital Markets, Desjardins Securities, National Bank Financial, RBC Capital Markets, Scotia Capital, and TD Securities.
Revised recommendations
Earlier this month, two analysts revised their target price –both lower. Tyler Reardon, the analyst from Peters & Co., trimmed his target price by $1 to $45. David Newman from Desjardins Securities reduced his target price to $45 from $50.
Financial forecasts
The Street is forecasting EBITDA of $818-million in 2018, rising 29 per cent to $1,053-million in 2019. The consensus earnings per share estimates are $1.48 in 2018 and $2.49 in 2019.
In recent months, earnings expectations have been revised down. For instance, three months ago, the consensus EBITDA estimates were $823-million for 2018 and $1,102-million for 2019.
Valuation
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 7.2 times the 2019 consensus estimate, below its three-year historical average multiple of 11.7 times and near trough levels.
The average 12-month target price is $48.29, suggesting the share price has nearly 30 per cent upside potential over the next year. Individual target prices are as follows in numerical order: $41 (the low on the Street is from Sabahat Khan, the analyst at RBC Capital Markets), two at $45, $46, $47, $49, $54, and $57 (the high on the Street is from Derek Dley, the analyst at Canaccord Genuity).
Insider Transaction Activity
There has been very little insider trading activity in the stock in recent months. Since the second half of 2018, only two insiders have been trading shares in the public market.
Most recently, between Dec. 20 and Dec. 27, chairman Jim Pantelidis bought a total of 2,384 shares at an average price per share of $33.87 across several accounts. The total cost of these purchases totaled over $80,000.
On Dec. 18, the president and chief executive officer Bob Espey exercised his options, receiving 226,530 shares, and sold 34,900 shares at a price per share of $34.186, leaving 348,402 shares in his portfolio.
Chart watch
The share price tumbled 31 per cent from a record closing high of $46.95 on Oct. 16 to close at $32.34 on Dec. 24. Since the end of 2018, the share price has stabilized and is recovering, climbing 5 per cent year-to-date.
Looking at key resistance and support levels, the stock is has a major ceiling of resistance around $40. After that, there is overhead resistance between $45 and $47. Looking at the downside, there is initial technical support around $35, close to its 50-day moving average (at $36.62) and its 200-day moving average (at $36.43). Failing that, there is strong support around $32.
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.
Jennifer Dowty