On today's TSX Breakouts report, there are 15 stocks on the positive breakouts list (stocks with positive price momentum), and 27 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a small-cap industrial company that may soon appear on the positive breakouts list. The company is set to report its fourth-quarter financial results, typically its strongest quarter, in exactly two weeks. For 11 of the past 13 quarters, the share price has increased after the company reported its earnings. If this trend continues, the share price could rally to a record high. The security highlighted today is Cargojet Inc. (CJT-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Mississauga-based, Cargojet provides time sensitive air cargo services and transports over 1.3-million pounds of cargo each business night. Most of the company's revenues are derived from its overnight service between 14 major cities across Canada.
The company has a number of attractive attributions. For instance, the company has a well-known customer base. Under a Master Services Agreement, the company provides air cargo services for Canada Post and Purolator that extends until March 31, 2025. The company also provides air cargo services for Amazon and United Parcel Service Canada (UPS). Furthermore, the majority of the company's customers pre-purchase space and weight capacity. In addition, the company is able to pass higher fuel costs on to its customers.
Cargojet will release its fourth-quarter financial results before the market opens on March 12 – historically, this is the company's strongest quarter. The Street is expecting EBITDAR (earnings before interest, taxes, depreciation, amortization, and aircraft rent) of $34-million, EBITDA (earnings before interest, taxes, depreciation, amortization) of $31-million and earnings per share of 69 cents. The fourth quarter is generally the strongest quarter due to the high volume of shipments occurring over the holiday season.
Dividend policy
The company pays its shareholders a quarterly dividend of 19.25 cents per share or 77 cents per share on a yearly basis. This equates to an annualized dividend yield of 1.2 per cent.
In March 2017, the company announced a 10 per cent increase to its quarterly dividend, lifting the dividend to its current level.
Analysts' recommendations
There are seven analysts that cover this small-cap industrial stock with a market capitalization of $843-million, of which five analysts have buy recommendations and two analysts have hold recommendations.
The seven firms providing research coverage on the company are as follows in alphabetical order: Acumen Capital, Beacon Securities, CIBC World Markets, Echelon Wealth Partners, EVA Dimensions, National Bank Financial, and RBC Capital Markets.
Revised recommendations
Earlier this month, Walter Spracklin, the analyst at RBC Capital Markets, lifted his target price to $71 (the high on the Street) from $60.
Last month, Brian Pow from Acumen Capital increased his target price to $65 from $60. Ralph Garcia, the analyst from Echelon Wealth Partners, bumped his target price to $70 from $62.50. Kevin Chiang from CIBC World Markets increased his target price by $2 to $62.
Financial forecasts
Analysts are forecasting steady growth. The consensus EBITDAR estimates are $118-million for 2017, $126-million in 2018, and $139-million in 2019. The consensus EBITDA estimates are $104-million for 2017, $116-million for 2018, and $129-million in 2019. The consensus EPS estimate is $1.75 in 2017, $2.42 in 2018, and $2.88 for 2019.
Earnings forecasts have been quite stable. For instance, six months ago, the consensus EBITDA estimate was $114-million in 2018 and the earnings per share estimate was $2.44 for 2018. .
Valuation
Many analysts value the stock on a forward EV/EBITDAR multiple basis.
The consensus one-year target price is $68.67, implying the stock price may appreciate 9 per cent over the next 12 months. However, target prices vary substantially from a low of $55 (from the analyst at National Bank Financial) to a high of $71 (from the analyst at RBC Capital Markets). Individual target prices provided by six firms are as a follows in numerical order: $55, two at $62, $65, $70, and $71.
Insider transaction activity
Looking back to the beginning of the fourth quarter of 2017, there has not been any buying or selling activity reported by insiders.
Chart watch
In 2017, the share price was trading sideways for the first nine months of the year and then began to accelerate in the fourth quarter.
The stock is off to a strong start in 2018. Year-to-date, the share price is up over 7 per cent and is only 18 cents away from its record closing high of $61.19 set on January 19.
On Friday, during the final hour and half of trading, the share price spiked to over $63 from $62.20 on low volume. As a result, I would not be surprised if the share price were to temporarily retreat.
On a pullback, there is initial support around $60, near its 50-day moving average (at $60.07).
Liquidity is low for this stock, which can increase price volatility in the share price.
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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, 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.