On today’s TSX Breakouts report, there are 76 stocks on the positive breakouts list (stocks with positive price momentum), and just four securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a security that appears on the positive breakouts list. After the market closes on Feb. 19, the company will be releasing its fourth-quarter earnings results. For the past seven consecutive quarters, the share price has had positive response immediately following the release of its quarterly earnings. The share price has climbed nearly 14 per cent year-to-date and analysts are forecasting a further 12-per-cent potential gain over the next year (including the 5-per-cent dividend yield). The security I am referring to is Sienna Senior Living Inc. (SIA-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Ontario-based Sienna is one of Canada’s largest owners and operators of seniors housing with a portfolio of 87 long-term care and retirement homes that are located primarily in Ontario (70 sites) but also in B.C. (17 locations). In the third-quarter, the pro forma net operating income (NOI) breakdown was 56 per cent funded care, which is paid by the government, and 44 per cent retirement or private-pay care, where rates are determined by the market. By 2020, management targets a 50/50 split between funded and retirement care.
Sienna operates in an industry with attractive features such as growing demand with aging demographics and high barriers to entry as long-term care homes in Ontario are licensed by the Ministry of Health and Long-Term Care. Sienna has a source of stable cash flows through its provincial government funding.
After the market closed on Nov. 14, the company reported slightly better-than-expected quarterly results. Operating funds from operations (OFFO) came in at 36 cents per share, a penny ahead of the consensus estimate and up 4.6 per cent year-over-year. Same property net operating income (NOI) increased 3.5 per cent year-over-year. The retirement same-property portfolio’s occupancy averaged 91.8 per cent, down from 94 per cent reported during the same period last year. The long-term care/residential care portfolio saw its average occupancy rate hold steady at 98.7 per cent from 98.6 per cent reported during the same period last year. Adjusted funds from operations (AFFO) per share came in at 37 cents. The company’s balance sheet improved with its debt-to-gross book value declining to 48.3 per cent from 51.8 per cent reported last year. The share price advance 1 per cent the following trading day.
On the earnings call, the president and chief executive officer Lois Cormack provided a positive outlook for the company, “Looking ahead, we believe the outlook for Sienna is strong, and we expect to continue the programs that we have made on our strategic priorities: growing the company, enhancing our operating platform and maintaining a strong balance sheet. Our focus on these priorities should continue to translate into long-term accretive growth for Sienna shareholders. We expect moderate, single-digit growth from the Retirement segment in 2019 through maintaining occupancy and achieving rate increases in accordance with market conditions. In regards to the funded part of the business, we expect consistent performance in 2019 similar to the 2018 performance after excluding the onetime benefit. We are pleased with the progress that we are making on the integration of our 10 recently acquired residences. This is a great portfolio, and we continue to expect it to perform as anticipated. On the development front, the expansion of Island Park is expected to be completed mid-2019. Further to this, we are optimistic the new Ontario government's policy will be favorable to advancing our Phase 1 development strategy, which will receive the renewing of over 1,000 older Long Term Care beds. Additionally, we'll be adding over 500 new retirement suites to create seniors living campuses. Currently, we have two projects that have reached preliminary approval by the Ministry of Health and have received 223 additional licenses, which will help support the feasibility of Phase 1 projects.”
In the earnings release, management provided an update on the discontinued proposed class action lawsuit, “On October 25, 2018, the Ontario Superior Court of Justice issued an order discontinuing the proposed class action, served on the Company on May 2, 2018, as a class action. The Company expects that this action will be an individual claim and any potential liability pursuant to such claim will be covered by insurance and should therefore not have a material adverse impact on the business.”
Sienna will be reporting its fourth-quarter financial results after the market closes on Tues. Feb. 19 and hosting an earnings call the following day at 9:30 a.m. ET. For the past seven consecutive quarters, after the company has reported its earnings results, the share price has had a positive response during the following trading session. For instance, after the company reported its third-quarter financial results in Nov., the share price advanced 1 per cent the following trading day. In August, the share price jumped nearly 4 per cent after it reported its second-quarter financial results. In May, the stock price advance 0.6 per cent after the release of its first-quarter earnings results.
Dividend policy
Sienna pays its shareholders a monthly dividend of 7.5 cents per share or 90 cents per share on a yearly basis, translating to an annualized yield of 5.1 per cent.
During the first nine months of 2018, the AFFO payout ratio (based on basic AFFO) stood at 60 per cent, suggesting the dividend is sustainable.
Analysts’ recommendations
This small-cap health care stock with a market capitalization of $1.18-billion is actively covered by 10 analysts, of which six analysts have buy recommendations and four analysts have hold recommendations.
The firms providing recent research coverage on the company are as follows in alphabetical order: BMO Capital Markets, Canaccord Genuity, CIBC Capital Markets, Echelon Wealth Partners, Laurentian Bank Securities, National Bank Securities, Raymond James, RBC Capital Markets, Scotiabank and TD Securities.
Revised recommendations
The most recent revisions occurred in Nov., after the company released its third-quarter financial results. That month, three analysts revised their recommendations. Pammi Bir, the analyst from Scotiabank, lowered his target price by 25 cents to $19. Brendon Abrams, the analyst from Canaccord Genuity, tweaked his target price higher to $19.50 from $19. Finally, Yashwant Sankpal from Laurentian Bank Securities reduced his target price to $18 from $19.
Financial forecasts
The Street is forecasting modest, steady earnings growth for the company. The consensus FFO per share estimates are $1.37 in 2018, $1.42 in 2019 and $1.48 in 2020. The consensus AFFO per share estimates are $1.43 in 2018, $1.48 in 2019, and $1.52 in 2020.
Earnings forecasts have been relatively stable. For instance, three months ago, the consensus FFO per share estimates for 2018 and 2019 were exactly the same as current estimates. However, the Street was forecasting AFFO per share to be slightly higher, $1.45 in 2018 and $1.49 in 2019.
Valuation
On a price-to-AFFO basis, the stock is trading at a multiple of 12.1 times the 2019 consensus estimate. On a price-to-FFO basis, the stock is trading at 12.6 times the 2019 consensus estimate, which is below its three-year historical average forward multiple of 13.3 times.
The consensus one-year target price is $19.16, suggesting there is 7 per cent upside potential in the share price over the next 12 months, including the 5 per cent yield, this equates to a potential total return of 12 per cent. Individual target prices are as follows in numerical order: $18 (the low on the Street is from Yashwant Sankpal, the analyst at Laurentian Bank Securities), $18.50, $18.75, four at $19, two at $19.50, and $20 (the high on the Street is from Jonathan Kelcher, the analyst at TD Securities).
Insider transaction activities
Year-to-date, there have not been any transactions reported by insiders. The most recent transactions occurred in the fourth-quarter of 2018.
Between Nov. 26 and Dec. 3, Paula Jourdain Coleman, who sits on the board of directors, sold a total of 6,100 shares at an average price per share of $16.86, leaving 357,400 shares in her account. Proceeds from the sale totaled over $100,000.
Prior to that on Nov. 20, fellow director Jack MacDonald invested over $74,000 in shares of the company. He purchased 4,500 shares at a price per share of $16.53, increasing his portfolio’s position to 24,000 shares.
Chart watch
Year-to-date, the share price is up nearly 14 per cent. Given this move higher, the stock is currently in overbought territory with a relative strength index (RSI) reading of 70. Generally, a reading at or above 70 indicates an overbought condition. Consequently, in the near-term, the positive price momentum may soon need to pause as it digests its gains. Over the past two years, the share price has largely traded between $16 and $18 and is currently at the upper end of this trading band.
Looking at key technical resistance and support levels, the stock has major overhead resistance around $18, and after that, around $19, close to its record closing high of $18.79 reached back in 2017. On a pullback, there is strong technical support around $17, close to its 50-day moving average (at $16.73) as well as near its 200-day moving average (at $16.86). Failing that, there is strong technical support around $16.
This small-cap health care stock has reasonable liquidity. The three-month historical daily average trading volume is approximately 287,000 shares.
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