On today’s TSX Breakouts report, there are 24 stocks on the positive breakouts list (stocks with positive price momentum), and 45 securities are on the negative breakouts list (stocks with negative price momentum).
Over one-third of the stocks on the positive breakouts list are from the energy sector. Discussed today one such energy stock. Tamarack Valley Energy Ltd. (TVE-T). Tamarack is a top-performing stock in the S&P/TSX composite index with a year-to-date gain of over 78 per cent, and analysts believe the share price has a further 23-per-cent upside potential. This small-cap stock has a large number of buy recommendations – 16 buy calls. Management continues to increase their production guidance and has a strong balance sheet to support its growth objectives. Furthermore, the company has been active in its share buyback program.
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Calgary-based Tamarack is an oil-weighted producer with operations in Alberta and Saskatchewan. In the second quarter, the company’s oil and NGL (natural gas liquids) weighting was 63 per cent. Management expects this weighting will increase to between 64 per cent and 67 per cent in the second half of 2018.
At the end of Sept., the company was added to the S&P/TSX composite index, increasing the stock’s visibility and potentially attracting new investors.
On Sept. 20, management provided an updated, positive outlook for 2018 and preliminary forecast for 2019. Average annual production is now anticipated to be between 24,000 and 24,500 barrels of oil equivalent per day (boe/d) in 2018 rising to between 25,500 and 26,500 boe/d (60 per cent to 67 per cent oil and liquids) the following year.
After the market closed on Aug. 9, the company reported better-than-expected second quarter financial results that sent the share price spiking 2.7 per cent on high volume the following day. The company realized record production volumes of 23,853 boe/d and increased their 2018 annual average production guidance to between 23,500 and 24,000 boe/d from between 22,500 and 23,500 boe/d. Cash flow per share came in at 26 cents, above the consensus estimate of 24 cents. The company has been active in its share buyback program repurchasing 1,081,000 shares during the first half of 2018.
In the earnings release, the company summarized its main objectives stating, “Tamarack’s strategic direction is focused on two key principles – targeting repeatable and relatively predictable plays that provide long-life reserves, and using a rigorous, proven modeling process to carefully manage risk and identify opportunities. The company has an extensive inventory of low-risk, oil development drilling locations focused primarily in the Cardium and Viking fairways in Alberta that are economic over a range of oil and natural gas prices.”
Dividend policy
The company does not pay its shareholders a dividend.
Analysts’ recommendations
This small-cap stock with a market capitalization of $1.16-billion is well covered by the Street with 17 analysts following the company. The stock has 16 buy recommendations and one ‘sector perform’ recommendation (from the analyst at RBC Capital Markets).
Revised recommendations
In Sept., three analysts revised their expectations – all higher. Dan Payne, the analyst from National Bank Financial, increased his target price to $6.75 from $6.50. Cody Kwong from GMP Securities raised his target price by 50 cents to $7. Trevor Reynolds from Acumen Capital hiked his target price to $6.50 from $6.
Financial forecasts
The Street is forecasting cash flow per share of $1.07 in 2018, rising over 21 per cent to $1.30 in 2019.
Earnings expectations have been rising. To illustrate, three months ago, the consensus cash flow per share estimates were $1.04 for 2018 and $1.25 for 2019.
Valuation
Many analysts evaluate the stock on an enterprise value-to-debt adjusted cash flow basis.
The one-year average target price is $6.30, suggesting there is 23 per cent upside in the share price over the next 12 months. Individual target prices are as follows in numerical order: three at $5.50 (from the analysts at RBC Capital Markets, AltaCorp Capital, and Canaccord Genuity), $5.75, four at $6, three at $6.50, two at $6.75, four at $7 (the high on the Street is from the analysts at Eight Capital, Macquarie, Peters & Co., and GMP Securities).
Insider transaction activity
Most recently, on Sept. 4, chairman Floyd Price purchased 5,000 shares at a price per share of $4.8363, increasing his portfolio’s position to 79,068 shares.
Chart watch
Year-to-date, Tamarack Valley Energy is the second best performing stock in the S&P/TSX composite energy sector index with a price return of 79 per cent behind MEG Energy Corp. (MEG-T) whose share price has rallied 115 per cent.
After a spectacular rally in the first half of the year, the positive price momentum has paused. For the past three months, the stock price has been trading principally between $4.50 and $5.
Looking at key resistance and support levels, the share price has a major ceiling of resistance around $6. On a pullback, the stock price has strong technical support around $4.50.
This small-cap stock is fairly liquid. The three-month historical daily average trading volume is approximately 2.2-million 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 stock
s 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