Tuesday’s TSX breakouts: This dividend stock has 5 ‘buy’ calls and a 32% upside forecast

There are no major Canadian economic releases due out today. It is also a light calendar in the U.S., housing data and the October consumer confidence index figures are released this morning.

In terms of earnings releases from companies in the S&P/TSX composite index, Canadian National Railway, DH Corp., and PrairieSky Royalty will all be releasing their third-quarter financial results after the market closes today.

Looking back to Monday, the S&P/TSX composite index lost 16 points, or 0.11 per cent to close at 14,923. There were 113 securities in the TSX Index that advanced, 127 securities declined in value, and seven stocks closed the day unchanged. Gold and energy stocks weighted the Index down.

The S&P/TSX composite index is up 1.34 per cent month-to-date, and up 14.70 per cent year-to-date.

On today's TSX Breakouts report, there are 43 securities on the positive breakouts list (stocks with positive price momentum) compared to just 10 stocks on the negative breakouts list (stocks with negative price momentum).

Discussed today is an industrial stock offering investors a reasonable dividend, which appears on the negative breakouts list. The stock's valuation is steadily becoming more compelling as the share price drifts lower. The stock I am referring to is New Flyer Industries (NFI-T).

A brief outline is provided below that may serve as a springboard for further fundamental research.

The company

Winnipeg-based New Flyer is North America's largest transit bus manufacturer, and motor coach maker and parts supplier. In 2015, the company announced the transformational acquisition of Motor Coach Industries, North America's largest motor coach manufacturer, parts and service company.

On Aug. 10, the company reported better-than-expected second quarter financial results that sent the share price soaring over 7 per cent the following trading session on high volume. Revenue came in at $587-million (U.S.), adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $80-million (U.S.), earnings per share (EPS) was 58 cents (U.S). The Street was forecasting revenue of $529-million (U.S.), EBITDA of $68-million (U.S.), and EPS of 51 cents (U.S.).

On Oct. 17, the company announced its third-quarter order activity and backlog. Management trimmed its guidance for its aftermarket parts business, reducing its 2016 growth forecast to approximately no growth down from 5 per cent growth previous expected, stating in the news release, "Management believes that the increase in new bus and coach sales in recent years leading to increased fleet replacement has had a short term dampening effect on the aftermarket parts business." The share price plunged almost 6 per cent that day on high volume with over 884,000 shares traded.

The company will be reporting its third-quarter financial results on November 10. The Street is forecasting revenue of $511-million (U.S.), EBITDA of $67-million (U.S.), and EPS of 44 cents (U.S.).

Dividend policy

The company pays its shareholders a quarterly dividend of 23.75 cents (Cdn) per share, or 95 cents (Cdn) per share yearly. This equates to an annualized dividend yield of 2.5 per cent.

Management is committed to returning capital to shareholders, announcing two dividend increases in 2015, and a 35.7 per cent dividend hike a few months ago, in June.

The free cash flow payout ratio was 20 per cent for the first half of 2016.

Valuation

According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 7.4 times the 2017 consensus estimate, which is in-line with its three-year historical average of 7.5 times.

Analysts' recommendations

According to Bloomberg, there are seven firms providing analyst coverage, these firms in alphabetical order are: Alta Corp. Capital, BMO Capital Markets, CIBC World Markets, EVA Dimensions, GMP, National Bank Financial, and Scotia Capital. There are five 'buy' recommendations and two 'hold' recommendations.

Target prices range from a low of $47 to a high of $53, implying upside potential ranging between 25 per cent and 40 per cent. Individual target prices provided by six firms in numerical order are as follows: $47, $49, two at $50, $51 ,and $53. The average one-year target price is $50, implying there is over 32 per cent upside potential over the next 12 months.

Growth is anticipated to moderate. The consensus EBITDA forecast is $292-million (U.S.) in 2016, rising 7 per cent to $312-million (U.S.) in 2017. The Street is forecasting the company to report EPS of $1.99 (U.S.) in 2016, climbing 18 per cent to $2.35 (U.S.) in 2017.

Chart watch

The stock has been a strong long-term performer. Year-to-date, the stock price has rallied 33 per cent, and in 2015, the share price more than doubled. In 2014 and 2013, the share price climbed 27 per cent and 23 per cent, respectively.

That being said, in recent months, the share price has been in a downtrend, falling nearly 11 per cent since the beginning of September. On Monday, the stock price hit an intraday low of $36.63, a decline of 3.5 per cent from the prior day's closing price, before recovering. In addition, there was high volume with over 700,000 shares traded on Monday, above the two-month historical daily average trading volume of just over 500,000 shares. The share price may soon stabilize once this selling pressure eases.

There is initial downside support around $36.50, which is close to the stock's 200-day moving average (at $36.53), and failing that, there is support around $35.

There is initial upside resistance around $40, and after that, around $41,50, which is near the stock's 50-day moving average (at $41.53).

Despite the recent market weakness, the shares are not yet oversold. The relative strength index is at 35, suggesting the shares are approaching oversold territory. Generally, a reading at or below 30 indicates an oversold 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.