On today's TSX Breakouts report, there are 15 stocks on the positive breakouts list (stocks with positive price momentum), and 15 stocks are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a security that appears on the negative breakouts list. The company will be releasing its second quarter financial result next week. If history repeats itself, the share price may rebound from its current downtrend. The stock price has rallied immediately after reporting its financial results in eight of the past nine quarters. There are 13 buy recommendation on the stock with a 17-per-cent price return anticipated over the next year. The security highlighted below is Waste Connections Inc. (WCN-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The Company
Waste Connections' core business offers solid waste collection, solid waste disposal and transfer, and solid waste recycling services with operations across North America. Solid waste collection is the company's largest business segment, representing 69 per cent of the company's total revenue in the first quarter. In the U.S., the company operates in 39 U.S. states and the District of Columbia, and provides services in five Canadian provinces.
There is seasonality in the company's revenues. Historically, revenues are lowest in the winter months, or first quarter, and higher in the second and third quarters, after which, revenues dip back down in the fourth quarter.
After the market closed on April 26, the company reported better-than-expected first-quarter financial results that send the share price rising nearly 4 per cent the following trading day. Reported adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $333-million (U.S.), ahead of the consensus estimate of $323-million.
In late June, the company held an analyst/investor day during which chief executive officer Ronald Mittelstaedt said, "Whether in good times or bad, we believe we've, build a resilient model." The company has delivered 13 consecutive years of positive stock price returns. Mr. Mittelstaedt added, "We believe ultimately in this business, the only thing that matters is free cash flow creation, that is what drives value creation. That's been our focus for 20 years. We've expanded the free cash flow as a percentage of revenue over the last decade by almost 2 times as a percentage of revenue, moving it from approximately 10 per cent of revenue to well, at times, prior to the progressive transaction to 18 per cent to 20 per cent of revenue, still sitting today at about 16 per cent of revenue."
The company is anticipated to report its second-quarter financial results after the market closes on July 25. The Street is forecasting the company will report EBITDA of $364-million (U.S.).
The stock is dual-listed, trading on both the Toronto Stock Exchange and the New York Stocks Exchange under the same ticker, WCN.
Returning Capital to Shareholders
The company pays its shareholders a quarterly dividend in U.S. dollars of 12 cents per share, or 48 cents per share yearly. This equates to an annualized dividend yield of approximately 0.7 per cent.
Last October, the company announced a 24 per cent dividend increase, lifting the quarterly dividend to its present level.
In 2016, the company did not repurchase any shares, nor was management active in its share buyback program during the first quarter of 2017.
Analysts' Recommendations
According to Bloomberg, 16 analysts have issued recent research reports, of which, 13 analysts have buy recommendations and three analysts have hold recommendations.
Financial Forecasts
The company reports its financial results in U.S. dollars.
The Street is expecting EBITDA of $1.43-billion in 2017 and anticipated to rise to $1.55-billion in 2018.
Financial forecasts have been stable, increasing slightly, over recent months. For instance, three months ago, the consensus EBITDA estimates were $1.42-billion for 2017 and $1.53-billion for 2018.
Valuation
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of over 13 times the 2018 consensus estimate, well above its three-year historical average and near its peak multiple during this time period.
The consensus one-year target price is $94.94 (Canadian), suggesting the stock price has 17 per cent upside potential over the next 12 months.
Insider Transaction Activities
There has been mixed trading by insiders with both buying and selling activity.
On June 7, the company's president Steven Bouck, sold 15,000 shares at an average price of $96.05 (U.S.) per share, reducing his portfolio's position to 192,225 shares.
On June 6, director Sue Lee , who sits on the board of directors, purchased 800 shares, increasing her portfolio's holdings to 5,079 shares.
On June 5, fellow director Michael Harlan sold 3,400 shares at an average price of $96.487 (U.S.) per share, trimming his portfolio's position to 27,536 shares.
On June 2, Patrick Shea, senior vice-president, general counsel and secretary, sold 6,000 shares, taking his portfolio's holdings down to 22,248 shares.
Chart Watch
Year-to-date, the share price is up 15.6 per cent, making the stock one of the top performers in the S&P/TSX composite industrials sector index. The stock's underlying uptrend remains intact. However, in recent weeks, the share price has come under pressure, falling 6 per cent over the past month, in opposing direction to the rising Canadian dollar, which has rallied 5 per cent.
The selloff has been swift with the share price nearing oversold territory with the relative strength index reading at 31. Generally, a reading at or below 30 indicates an oversold condition.
In terms of key resistance and support levels, there is a ceiling of resistance around $85 (Canadian), near its 50-day moving average (at $84.63). After that, there is overhead resistance just below $90. The stock price has downside support around $80. Failing that, there is support around $75, which is close to its 200-day moving average (at $75.40).
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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 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.
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