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On today’s TSX Breakouts report, there are 32 stocks on the positive breakouts list (stocks with positive price momentum), and 15 securities are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a stock that may surface on the positive breakouts list in the future if analysts’ expectations are correct.

The stock has a unanimous buy recommendation with the share price expected to rally 35 per cent over the next year. In addition, the stock offers investors an attractive 5.6-per-cent dividend yield. From a historical perspective, the stock is reasonably valued, currently trading at a multiple that is relatively in-line with its historical average. The security highlighted today is Enercare Inc. (ECI-T).

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

The company

Markham, Ont.-based Enercare provides water heaters, furnaces, air conditioners and HVAC (heating, ventilation, and air conditioning) rental products, as well as services such as protection plans to its customers. The company’s operations can be segmented into three core businesses: Service Experts, Home Services, and sub-metering. In the first-quarter, 54 per cent of the company’s revenue was from Service Experts, 42 per cent of revenue was from Enercare Home Services, and the balance, 4 per cent, was from sub-metering. Enercare has operations in Canada and the United States.

Before the market opened on May 4, the company reported first quarter financial results that were shy of expectations. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) came in at $58.7-million, up 12 per cent year-over-year but below the consensus estimate of $61.5-million. In terms of its balance sheet, the company’s leverage ratio is high with its net debt-to-adjusted EBITDA ratio above 3 times. The share price was relatively unchanged that day, closing down 3 cents to $17.23.

Dividend Policy

The company pays its shareholders a monthly dividend of 8.32 cents per share, or 99.84 cents per share on a yearly basis. This equates to an annualized dividend yield of 5.6 per cent.

Management is firmly committed to returning capital to its shareholders, announcing dividend increases each calendar year since 2011 (two hikes were announced in 2013). The company’s most recent dividend increase was announced in April, amounting to a 4 per cent dividend hike.

Analysts’ Recommendations

This mid-cap dividend stock with a market capitalization of $1.9-billion is covered by seven analysts on the Street. Every single analyst has a buy recommendation, maintaining their bullish expectations despite the recent earnings shortfall.

The seven firms providing research coverage on the company are as follows in alphabetical order: Accountability Research, Desjardins Securities, Laurentian Bank Securities, National Bank Financial, RBC Capital Markets, Scotia Capital, and TD Securities.

Revised recommendations

Last month, several analysts made minor revisions to their target prices after the company released its quarterly earnings results.

George Doumet, the analyst from Scotia Capital, lifted his target price to $23.50 from $23.

Taking an opposing approach, Damir Gunja from TD Securities lowered his target price by $1 to $23. David Newman from Desjardins Securities trimmed his target price by $1 to $23. Jim Marrone, the analyst from Accountability Research, lowered his target price by $1 to $23.50.

Financial forecasts

The Street is forecasting the company will report EBITDA of $316-million in 2018, rising nearly 10 per cent to $346-million in 2019. The consensus earnings per share estimates are 76 cents in 2018 and 88 cents the following year.

Earnings expectations have moderated for 2018 but remained steady for 2019. For instance, four months ago, the Street was forecasting EBITDA of $324-million in 2018 and $347-million in 2019.

Valuation

According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 8.6 times the 2019 consensus estimate, which is slightly below its three-year historical average of 8.8 times, and below its peak multiple of nearly 10 times. Over the past three years, the stock has traded at an EV/EBITDA multiple as low as 7 times.

The one-year consensus target price is $24, suggesting there is 35 per cent upside in the share price over the next 12 months. Target prices are quite concentrated ranging from a low of $23 (at Desjardins Securities and TD Securities) to a high of $26 (from the analyst at Laurentian Bank Securities). Individual target prices are as follows in numerical order: two at $23, two at $23.50, $24, $25 and $26.

Insider transaction activity

No transactions in the public market have been reported by insiders so far this year.

Chart watch

The stock’s chart has been weak for months. However, the share price may poised to recover and cross above the $18 level.

Year-to-date, this consumer stock is down nearly 14 per cent. The share price has been in a downtrend since late 2017 but has shown signs of stabilization in recent months. On April 11, the share price closed at $16.81, its lowest level since 2016, and subsequently bounced back above $17. Weeks later, on May 9, the share price retested this level, closing at $16.82, before recovering, once again, to the $17 level. Consequently, $16.80 appears to be a level of strong downside support.

Looking at key resistance levels, the share price is approaching an initial ceiling of resistance around $18. After that, there is resistance around $19, close to its 200-day moving average (at $19.21), and then around $20.

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.

Positive BreakoutsJune 4 close
AW.UN-TA&W Revenue Royalties Income Fund $32.90
ACR.UN-TAgellan Commercial REIT $12.94
BYD.UN-TBoyd Group Income Fund $116.00
DOO-TBRP Inc $60.91
GOOS-TCanada Goose Holdings Inc. $55.87
CFX-TCanfor Pulp Products Inc $22.74
WEED-TCanopy Growth Corp. $39.50
CLS-TCelestica Inc $15.80
GIB.A-TCGI Group Inc $80.99
CSU-TConstellation Software Inc $1,034.68
DRG.UN-TDream Global Real Estate Investment Trust $15.00
DIR.UN-TDream Industrial Real Estate Investment $10.92
GRT.UN-TGranite Real Estate Investment Trust $53.15
GC-TGreat Canadian Gaming Corp $55.23
HBC-THudson's Bay Co $10.62
IPCO-TInternational Petroleum Corp. of Sweden $8.86
LGT.B-TLogistec Corp $51.47
MDI-TMajor Drilling Group International Inc $7.51
MSI-TMorneau Shepell Inc $26.38
NXE-TNexGen Energy Ltd. $2.87
OSB-TNorbord Inc $56.13
QBR.B-TQuebecor Inc $25.46
QSR-TRestaurant Brands International Inc $77.62
RPI.UN-TRichards Packaging Income Fund $36.75
RBA-TRitchie Bros Auctioneers Inc $45.63
SHOP-TShopify Inc. $202.62
SRU.UN-TSmart Real Estate Investment Trust $29.83
SNC-TSNC-Lavalin Group Inc $57.53
SUM-TSolium Capital Inc $11.37
RNW-TTransAlta Renewables Inc $12.78
TCL.A-TTranscontinental Inc $29.58
WSP-TWSP Global Inc $70.44
Negative Breakouts
ARE-TAecon Group Inc $14.64
BLDP-TBallard Power Systems Inc $3.83
CEU-TCanadian Energy Services & Technology Co $5.08
CHR-TChorus Aviation Inc $7.23
CGO-TCogeco Inc $64.34
FTS-TFortis Inc $41.16
KEG.UN-TKEG Royalties Income Fund $17.70
LNR-TLinamar Corp $64.19
NFI-TNew Flyer Industries Inc $52.75
PEY-TPeyto Exploration & Development Corp $10.15
PIF-TPolaris Infrastructure Inc. $17.10
SIA-TSienna Senior Living Inc $16.40
SWY-TStornoway Diamond Corp $0.48
TOT-TTotal Energy Services Inc $12.04
ZCL-TZCL Composites Inc. $8.88

Source: Bloomberg

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