On today's TSX Breakouts report, there are nine stocks on the positive breakouts list (stocks with positive price momentum), and 68 stocks are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a company that has been a solid long-term investment for shareholders. The company was last featured in the TSX Breakouts Report in May, 2016. Since then, in a little over a year, the share price has increased 24 per cent. There is seasonality in the business with the company entering its seasonally strongest period and set to report its second quarter fiscal 2017 results in a few weeks (the company's fiscal year end is Nov. 30). The security highlighted below is Richelieu Hardware Ltd. (RCH-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The Company
Québec-based Richelieu Hardware manufactures and distributes specialty hardware and complementary products, such as kitchen and bathroom cabinets, servicing the residential and commercial renovation industry. It has more than 80,000 customers through its 37 distribution centres in Canada, 31 distribution centres in the U.S. and two Canadian manufacturing plants. The company has been steadily expanding and growing sales with management's prudent and disciplined acquisition strategy. In terms of geographical revenue breakdown, last quarter, sales in Canada represented approximately 64 per cent with the balance coming from the United States.
On April 18, the company announced it completed the acquisition of Brampton, Ontario-based, Weston Premium Woods Inc., a distributor which management forecasts will deliver approximately $60-million in additional annual sales.
On April 6, the company reported solid first-quarter fiscal 2017 financial results that were in line with expectations. Sales came in at $195.9-million, up 3.7 per cent year-over-year. Sales in Canada reached $125.6-million, increasing 4.5 per cent year-over-year, all of which was organic, or internal, growth. Sales in the U.S. were also strong at $53.2-million (U.S.), up 7.7 per cent year-over-year, of which 3.7 per cent was organic growth. Earnings before interest, taxes, depreciation and amortization (EBITDA) was $18.3-million, up 9.8 per cent year-over-year. EBITDA margins increased to 9.4 per cent compared to 8.8 per cent reported in the same period last year. Earnings per share was 20 cents, in-line with the consensus estimate.
The company is anticipated to report its second quarter fiscal 2017 financial result in early July. The consensus earnings per share estimate is 30.5 cents.
Returning Capital to Shareholders
Management has been firmly committed to returning capital to its shareholders, announcing a dividend increase in January of each year since 2010.
The company pays shareholders a quarterly dividend of 5.67 cents per share, or over 22 cents on a yearly basis. This equates to an annualized yield of 0.77 per cent.
The company has been actively repurchasing shares as part of its normal course issuer bid. During the first quarter, a relatively small number of shares, 46,200, were repurchased. In 2016, the company repurchased 1,004,700 shares.
Analysts' Recommendations
According to Bloomberg, analysts have mixed expectations. There are only two analysts covering the company. Anthony Zicha, the analyst at Scotia Capital, has a 'sector perform' recommendation, while Leon Aghazarian, the analyst from National Bank Financial, has an 'outperform' recommendation.
Financial Forecasts
The consensus sales estimates are $935-million for fiscal 2017, increasing 8 per cent and passing the $1-billion mark, and forecast to reach $1.013-billion in fiscal 2018. The Street is forecasting EBITDA of $108-million in fiscal 2017 and $119-million in fiscal 2018. The consensus earnings per share estimate are $1.22 in fiscal 2017, rising over 9 per cent to $1.34 in fiscal 2018.
Earnings expectations have increased in recent months. To illustrate, three months ago, the consensus EBITDA estimates were $105-million for fiscal 2017 and $113-million for fiscal 2018. The consensus earnings per share estimates for fiscal 2017 and fiscal 2018 were $1.20 and $1.30, respectively.
Valuation
According to Bloomberg, the stock is trading at a price-to-earnings multiple of 22 times the fiscal 2018 consensus earnings estimate, which is above its three-year historical average of 20 times. During the past three years, the peak valuation was 23.5 times. If the stock was to return to its peak multiple, this would suggest a target price of over $31.
The two analysts covering the company have target prices of $29.50, suggesting the stock is fairly valued, and $33.50, implying the stock price has nearly 14 per cent upside potential.
Revised Recommendations
In April, both analysts covering the stock maintained their recommendations but increased their target prices. Anthony Zicha, the analyst at Scotia Capital, revised his target price to $29.50 from $28.50, and Leon Aghazarian from National Bank Financial took his target price up to $33.50 from $32.
Insider Transaction Activities
The most recent trade in the public market occurred on April 24 when Guy Grenier, vice-president of sales and marketing - industrial, exercised his options and that same day sold the corresponding number of shares (20,000) at an average price of $29.1551 per share.
Prior to that, on March 9, Sylvie Vachon, who sits on the board of directors, purchased 1,000 shares at an average cost of $27.019 per share, initiating a portfolio position.
Chart Watch
The long-term chart is very attractive with the share price in a steady uptrend since mid-2011.
On a pullback, there is strong support around $27, close to its 200-day moving average (at $27.38). There is initial overhead resistance around $31.
====
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 indices 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.
If you want to receive an automatic link to all reports that I write, follow me on twitter @jennifer_dowty