Today, there are no major Canadian or U.S. economic releases.
In addition, no companies in the S&P/TSX composite index are scheduled to report quarterly earnings results.
This morning, key commodities such as the price of oil, natural gas, and gold are all relatively stable.
Briefly recapping Friday's stock market returns, major North American equity markets closed with solid gains.
In the U.S., the Dow Jones Industrial Average rallied 0.94 per cent, the S&P 500 index advanced 0.73 per cent, and Nasdaq composite index gained 0.54 per cent.
Turning to Canada, the S&P/TSX composite index increased by 77 points, or half a per cent, with positive returns in 10 of the 11 sectors. There were 171 securities in the TSX Index that advanced, 73 securities declined in value, and five stocks closed the day unchanged.
The TSX Index is up 1.23 per cent year to date.
On today's TSX Breakouts report, there are 38 stocks on the positive breakouts list (stocks with positive price momentum), and 14 stocks on the negative breakouts list (stocks with negative price momentum).
The security highlighted today appears on the positive breakouts list. The company offers shareholders a yield of over 7 per cent with upcoming projects anticipated to accelerate the company's growth profile – Veresen Inc. (VSN-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Calgary-based Veresen owns and operates energy infrastructure assets across the country including a pipeline transportation business, a midstream business, a power business, and holds an interest in a natural gas liquids extraction facility.
Last year, management announced plans to sell its power business. On Dec. 5, management provided shareholders with an operational update stating, "We continue to anticipate entering a binding sales agreement in the first quarter of 2017 and expect to close the sale in the first half of the year."
Management plans to use the proceeds from the sale of its power business to fund its growth opportunities, "The company will continue to advance these projects in 2017 through a capital program of approximately $475 to $525 million, with approximately 95% of the investment at Veresen Midstream. A significant portion of the capital at Veresen Midstream will be used to advance the construction of the three processing facilities sanctioned to date, with the Tower and Sunrise processing facilities expected to be in service towards the end of 2017. In aggregate, the Tower and Sunrise facilities will add 600 mmcf/d of processing capacity, more than doubling Veresen Midstream's existing capacity. Following an initial ramp-up period, these two facilities are expected to generate combined annual run-rate EBITDA of $75 to $95-million net to Veresen. The Saturn Phase II processing facility is expected to be in service in mid-2018."
A few weeks later, in a news release issued on Dec.28, Vereseon announced the sanction of $195-million of additional capital to finance its growth. Don Althoff, the president and chief executive officer, stated, ""With the sanction of this additional capital, Veresen now has over $1.4 billion of projects under construction. We expect these capital projects to deliver incremental per share growth as Veresen remains fully funded without the need to access capital markets. As Veresen Midstream's capital projects come into service, the significant increase in cash flow will reduce Veresen's leverage and bolster our financial flexibility to fund new growth opportunities generated from our strong footprint in the heart of the Montney play."
Management has issued guidance for 2017, anticipating distributable cash to fall between $1.00 and $1.14 per share, assuming the sale of its power business by the end of the second quarter.
Also important to note is the denial of the company's request by the Federal Energy Regulatory Commission for a rehearing of its application of its Jordan Cove LNG project. On Dec. 9, Mr. Althoff stated in a news release, "Veresen remains committed to this important energy infrastructure project. We are very disappointed by FERC's decision, especially in light of the significant progress that has been made in demonstrating market support for the project and the strong showing of public support for the project. We continue to firmly believe this project will provide significant economic benefit to Oregon, while ensuring responsible environmental stewardship and stakeholder engagement." The company indicated that they will provide shareholders with an update on their go-forward strategy at a later date.
The company will be announcing its fourth quarter financial results after the market closes on February 28. In November, the company reported better-than-expected third-quarter financial results. Distributable cash per share came in at 33 cents, surpassing the consensus estimate.
Dividend policy
The company pays its shareholders a monthly dividend of 8.33 cents per share. This equates to an attractive annualized dividend yield of 7.2 per cent.
Management has maintained the dividend at this level since late 2007. In the company's operational update provided in December, management stated, "Based on an annualized dividend of $1.00 per common share, the corresponding payout ratio would range from 88 per cent to 100 per cent. Importantly, Veresen expects the dividend will remain fully supported by distributable cash from its take-or-pay and fee-for-service businesses."
Valuation
According to Bloomberg, the stock is trading at an enterprise value-to-earnings before interest, taxes, depreciation and amortization (EBITDA) multiple of 10.5 times the 2017 consensus estimate. This is below the five-year historical average of 13.2 times and below its 10-year historical average of 11.1 times.
Analysts' target prices range from a low of $12, implying the stock is currently overvalued, to a high of $17, anticipating a potential price return of 22 per cent. Since December, 14 analysts have issued research reports with individual target prices provided by 13 firms (one analyst is restricted) as follows in numerical order: two at $12, two at $13, three at $14, $14.25, $14.50, $15, $15.50, $16, and $17. The consensus one-year target price is $14.23, suggesting the share price is fully valued with just 2 per cent upside potential over the next 12 months.
Analysts' recommendations
According to Bloomberg, there are currently nine analysts with 'buy' recommendations, three with "hold" recommendations, and one analyst (from Peters & Co.) with a "sell" recommendation.
The firms providing recent research coverage are as follows in alphabetical order: Alta Corp. Capital, BMO Capital Markets, Canaccord Genuity, CIBC Wold Markets, Desjardins Securities, GMP, Haywood Securities, Macquarie, National Bank Financial, Peters & Co., Raymond James, RBC Capital Markets, Scotia Capital and TD Securities.
Revised recommendations
There have been minor target price revisions. In January, several analysts revised their target prices slightly higher. Chris Cox, the analyst from Raymond James, raised his target price to $14 from $13. Patrick Kenny, the analyst from National Bank Financial, increased his target price to $17 from $15. Robert Hope, from Scotia Capital, increased his target price to $16 from $13.50. Lastly, Ian Gillies, from GMP, bumped his target price by 50 cents to $15.50.
Financial forecasts
The Street is forecasting solid growth for the company by 2018 as its projects come into service. The consensus EBITDA estimate is $598-million in 2016, $580-million in 2017, and $641-million in 2018.
Forecasts have increased in recent months. For instance, six months ago, the consensus EBITDA estimates were $484-million for 2016 and $531-million for 2017.
Insider transaction activities
On Dec. 20, Teresa Jang, the chief financial officer, purchased 5,000 shares at a price of $12.20 per share.
Chart watch
The stock chart looks positive.
Year to date, the energy sector is the worst performing sector in the S&P/TSX composite index, falling 4.65 per cent; however, for this energy sector member, the price performance has been the mirror image, rising 5.95 per cent.
On Friday, the stock price jumped 2.5 per cent on high volume. Over 5.8-million shares trades, well above the two-month historical daily average trading volume of 2.8- million shares.
In terms of key resistance and support levels, the share price has initial overhead resistance around $14, and after that, around $16. There is strong downside support around $12, which is close to its 200-day moving average (at $11.87).
The relative strength index is at 66, suggesting the shares are not yet overbought. Generally, a reading at or above 70 indicates an overbought condition.
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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, 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.