On today's TSX Breakouts report, there are 17 stocks on the positive breakouts list (stocks with positive price momentum), and 28 securities are on the negative breakouts list (stocks with negative price momentum).
On Monday, marijuana stocks lit up investor's screens.
Shares of Aphria Inc. (APH-T) climbed 4 per cent, Aurora Cannabis Inc. (ACB-T) increased 6 per cent, MedReleaf Corp. (LEAF-T) jumped 3 per cent, and the marijuana stock discussed today saw its share price soar nearly 12 per cent. This stock may reappear on the positive breakouts list in 2018 as there are several catalysts ahead for the company. The security highlighted today is Canopy Growth Corp. (WEED-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Ontario-based Canopy Growth is a market leader in the Canadian medical cannabis industry that is well-positioned to experience exponential growth in upcoming years. Management is focused on continued growth and expansion opportunities in the medical marijuana market, the recreational marijuana market, and international markets.
The company produces dried, oil, and capsule form cannabis through its core brands Tweed, Bedrocan, and Spectrum Cannabis. The company's cannabis production is derived from both indoor and greenhouse growing operations. Canopy Growth services the Canadian market as well as international markets with operations in seven countries.
Last October, management announced that international alcohol producer Constellation Brands Inc. (STZ-N) invested $245-million in the company in exchange for a 9.9 per cent ownership position in the company.
There has been a steady flow of positive news announcements from the company with additional positive announcements anticipated.
As the targeted summer 2018 federal legalization of recreational-use marijuana approaches, additional provincial supply agreements are anticipated to be announced with Canopy Growth. The company has supply agreements with four provinces –New Brunswick, Newfoundland & Labrador, Prince Edward Island, and Quebec – amounting to approximately 25,000 kilograms of annual supply. On Feb. 16, the company announced it has been conditionally selected to supply retail stores in Manitoba.
To support the expected strong demand, Canopy Growth completed a $200-million bought deal equity financing last month, issuing shares at a price of $34.60 per share. With this injection, the company cash position climbed to approximately $400-million. This money is earmarked to fund management's domestic and international expansion objectives.
Another potential near-term catalyst for the company is a possible listing on a U.S. exchange – the Nasdaq. Currently, one Canadian marijuana company, Cronos Group Inc. trades on the Nasdaq. Since Cronos began trading on this exchange (on Feb. 27), over the past five trading days, its share price has rallied from around the US$7 price level to approximately US$10.
Dividend policy
Management is focused on growth and as a result, the company currently does not pay its shareholders a dividend.
Analysts' recommendations
There are 10 analysts that cover this company, of which five analysts have buy recommendations, three analysts have hold recommendations, and two analysts have sell recommendations (from Echelon Wealth Partners and EVA Dimensions).
The 10 firms providing research coverage on the stock are as follows in alphabetical order: AltaCorp Capital, Beacon Securities, Canaccord Genuity, Cormark Securities, Cowen, Echelon Wealth Partners, Eight Capital, EVA Dimensions, GMP, and PI Financial.
Revised recommendations
Analysts' target prices vary widely; however, one common theme is that the majority of analysts have increased their expectations.
Last month, Neil Maruoka, the analyst from Canaccord Genuity, lifted his target price to $26 from $18.50. Jesse Pytlak from Cormark Securities raised his target price by $7 to $25. Russell Stanley, the analyst from Echelon Wealth Partners, increased his target price to $22 from $13. Daniel Pearlstein from Eight Capital expanded his target price to $35 from $22. Vahan Ajamian from Beacon Securities increased his target price to $24.50 from $16.50. Taking an opposing action, Keith Carpenter from AltaCorp Capital trimmed his target price by $1 to $41.
In January, Martin Landry from GMP raised his target price by $16, taking it up to $40. Vivien Azer, the analyst at Cowen, took her target price up to $44 from $24. Jason Zandberg from PI Financial increased his target price to $40 from $22.
Financial forecasts
Revenue is anticipated to accelerate rapidly over the upcoming years. The consensus revenue estimate is $80-million in fiscal 2018, $309-million in fiscal 2019, $716-million in fiscal 2020, and $970-million in fiscal 2021. The company's fiscal year end is March 31.
The Street is forecasting an earnings loss of 19 cents per share in fiscal 2018. The consensus earnings per share estimate turns positive in fiscal 2019 with 3 cents anticipated. By fiscal 2020 and fiscal 2021, the consensus earnings per share estimates are 55 cents and 78 cents, respectively.
When looking out to fiscal 2020, earnings estimates have increased significantly. For instance, four months ago, the consensus revenue estimates was $457-million, the consensus EBITDA estimate was $68-million and the earnings per share estimate was 34 cents.
Valuation
The stock can be valued using various methodologies such as a discounted cash flow analysis or using an enterprise value-to-EBITDA (earnings before interest, taxes, depreciation and amortization) approach.
The consensus one-year target price is $33.06, implying the share price is nearly fully valued. However, analysts' target prices range from a low of $22 (at Echelon Wealth Partners) to a high of $44 (at Cowen). Individual target prices provided by nine firms are as follows in numerical order: $22, $24.50, $25, $26, $35, two at $40, $41, and $44.
Insider transaction activity
There has not been any buying or selling activity reported by insiders year-to-date. The most recent transaction in the public market reported by an insider occurred in December.
On Dec. 28, Chief Executive Officer Bruce Linton exercised his options and the following day, he sold the corresponding number of shares (83,333) at an average price per share of $31.2001.
Chart watch
The share price fell sharply after closing at a record high of $42.07 on Jan. 9. The stock price collapsed 37 per cent to close at $26.45 on Feb. 27. Since then, the share price has been recovering, rallying 22 per cent in the past four trading days. On Monday, the share price climbed nearly 12 per cent on high volume with over 11.8-million shares traded, above the three-month historical daily average trading volume of 9.8-million shares.
In terms of key resistance and support levels, the stock price has initial overhead resistance around $35, and after that, there is a ceiling of resistance between $40 and $42. Should the share price retreat, there is initial downside support around $30, near its 50-day moving average (at $30.96) and failing that, there is support at $25, and then at $20.
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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.