On today’s TSX Breakouts report, there are 39 stocks on the positive breakouts list (stocks with positive price momentum), and 111 stocks are on the negative breakouts list (stocks with negative price momentum).
The security highlighted today appears on the positive breakouts list with the unit price closing at a record high on Tuesday. It is one of the few stocks on the list that is not a gold stock. This is a security that has provided long-term investors with strong gains year after year as management continues to successfully execute its growth strategy. Consequently, analysts have been raising their target prices and there are currently 11 buy recommendations on the security. Discussed below is Boyd Group Income Fund (BYD.UN-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The fund
Winnipeg-based Boyd Group operates a network of over 600 collision repair centers across North America, in 27 U.S. states and five Canadian provinces, under banners such as Boyd Autobody & Glass, and Gerber Collision & Glass. Boyd Group also operates auto glass shops across 34 U.S. states under banners such as Glass America, Auto Glass Service, and Auto Glass Authority. Boyd operates in an industry that is somewhat insulated from a recession.
In terms of geographical revenue breakdown, the majority of Boyd’s revenue is from south of the border with between 15 per cent to 20 per cent of sales from Canada and the remainder from the U.S. The Fund benefits from a higher U.S. dollar. Boyd Group is the one of the largest retail auto glass operator in the U.S. Furthermore, over 90 per cent of its revenue is generated through insurance carriers such as State Farm Insurance, Allstate, and Geico.
Before the market opened on May 15, the Fund reported its first-quarter financial results. Sales came in at $557.9-million, up 23 per cent year-over-year, and ahead of the consensus estimate of $543-million. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) came in at $54.2-million, up 28.6 per cent year-over-year, and above the consensus estimate of $50.4-million. Adjusted net earnings per unit was $1.47, above the Street’s expectation of $1.23. Same-store sales expanded 5.3 per cent. The unit price rallied 6.6 per cent that day.
Acquisition growth remains a key corporate objective, which is helping drive the Fund’s top line growth. Management remains focused and committed to doubling the size of its business over a five-year period ending in 2020, equating to an average annual growth rate of 15 per cent. The company operates in a highly fragmented industry, allowing Boyd to grow through acquisitions. In the first quarter earnings release, Boyd indicated that they had acquired 42 locations during the quarter with an additional nine locations after the quarter.
On the earnings call, chief executive officer Brock Bulbuck remarked, “Even after considering our growth capital spend in 2019 to date, we continue to have over $300 million of dry powder available in cash and existing credit facilities to execute on our growth strategy. Looking to the rest of 2019 and beyond. We continue to be confident that we will maintain our progress toward our long-term growth targets and operational plans. We continue to add locations in new markets and expand in markets where we have a presence today.”
Boyd will be reporting its second-quarter financial results before the market opens on Wed. Aug. 14. That day, management will host an earnings call at 10 a.m. ET.
The consensus revenue, EBITDA and earnings per unit estimates are $560-million, $72.3-million and $1.31, respectively.
On the first-quarter earnings call, Mr. Bulbuck provided a glimpse into the second quarter, “Entering Q2 [second quarter], we are starting to see some normal seasonal softening in demand in some of our markets that is translating into lower work-in-process levels.”
In addition to seasonality, the second quarter may not be as strong as the first quarter due to a cyber-attack that occurred on June 27.
In a news release the company stated, “While most of Boyd’s locations have been able to continue to process and complete repairs at normal or near normal levels, this event and the recovery period will result in a temporary interruption of some business that will result in the loss of some sales. The full extent of the impact on sales and earnings cannot be determined until all operations have been fully recovered, however, at this time based on current information and analysis, the overall financial impact is expected to be minimal.”
The statement also indicated that there was, “No evidence that customers’ or employees’ information was compromised as a result of this attack although cybersecurity experts are continuing to conduct and conclude a forensic analysis to confirm this fact as quickly as possible.”
Distribution policy
Boyd Group pays its unitholders a monthly distribution of 4.5 cents per unit, or 54 cents per unit on a yearly basis. This equates to an annualized yield of 0.3 per cent. Management has announced distribution increases for 11 consecutive years with the most recent hike announced in Nov. 2018.
The payout ratio is conservative. As of March 31, the payout ratio based on adjusted distributable cash for the trailing 12-months was 6.8 per cent.
Financial forecasts
The Street is forecasting EBITDA of $292-million in 2019, up from $173-million reported in 2018, and expected to rise to $335-million in 2020. Earnings per unit is anticipated to come in at $5.45 in 2019, up from $4.35 reported in 2018, and rise to $6.44 in 2020.
In recent months, financial forecasts have increased materially. For instance, three months ago, the consensus EBITDA estimates were $211-million for 2019 and $243-million for 2020, and earnings per unit expectations were $5.17 for 2019 and $6.05 for the following year.
Analysts’ recommendations
There are 12 analysts that cover this Fund, of which 11 analysts have buy recommendations and one analyst (David Newman, the analyst at Desjardins Securities) has a ‘hold’ recommendation.
The firms providing research coverage on Boyd are as follows in alphabetical order: AltaCorp Capital, BMO Nesbitt Burns, CIBC World Markets, Desjardins Securities, Cormark Securities, GMP, Jefferies, Laurentian Bank Securities, National Bank Financial, Raymond James, Scotiabank and TD Securities.
Revised recommendations
In July, two analysts revised their expectations. National Bank Financial’s Zachary Evershed hiked his target price to $195 from $175. Desjardins’ David Newman lifted his target price to $190 from $180 but downgraded his recommendation to a “hold” from a “buy.”
Valuation
According to Bloomberg, the security is trading at an enterprise value-to-EBITDA multiple of 12.7 times the 2020 consensus estimate, above with its three-year historical average multiple of 11.4 times but below its peak multiple of over 15 times during this time period.
The average one-year target price is $186.33, suggesting the Fund may deliver a price return of over 5 per cent over the next 12 months. However, analysts have a track record of revising their expectations higher as the company continues to execute its growth strategy.
Target prices range from a low of $172 (from Maggie MacDougall, an analyst at Cormark Securities) to a high of $195 (from Mr. Evershed at National Bank Financial). Individual target prices are as follows in numerical order: $172, three at $180, $185, five at $190, $194, and $195.
Insider transaction activity
Year-to-date, only two insiders have reported trades in the public market.
Most recently, on June 28, Sally Savoia, who sits on the board of trustees, purchased 1,000 units at an average price per unit of $165.50, increasing her account’s holdings to 5,000 units.
Between March 26 and March 28, Eddie Cheskis, chief executive officer of Glass America and Gerber National Claim Services, sold a total of 120,000 units, leaving 98,053 units in his account. Gross proceeds from the sales totaled over $12-million.
Chart watch
Long-term investors have been rewarded with impressive returns year after year and so far this year is no different. Year-to-date, the unit price is up 56 per cent with the unit price closing at a record high on Tuesday.
In 2018, Boyd’s unit price advanced 12 per cent, in spite of the fourth quarter market meltdown. In 2017, the unit price climbed 18 per cent. In 2016, the unit price increased 29 per cent . In 2015 and 2014, the unit price rose 39 per cent and 44 per cent, respectively.
In terms of key resistance and support levels, there is overhead resistance around $190. Looking at the downside, there is strong technical support around $170, close to its 50-day moving average (at $169.06).
Liquidity can be low with the three-month historical daily average trading volume at approximately 75,000 units.
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