On today's TSX Breakouts report, there are 48 stocks on the positive breakouts list (stocks with positive price momentum), and 11 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a security that appears on the positive breakouts list after the share price spiked 15 per cent on Tuesday on very high trading volume. The security I am referring to is Great Canadian Gaming Corp. (GC-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
B.C.-based Great Canadian Gaming operates 22 gaming properties with operations in British Columbia, Ontario, New Brunswick, Nova Scotia, and in Washington State.
The company is anticipated to achieve solid earnings growth in the year ahead.
On Dec. 19, the company announced that in partnership with Clairvest Group Inc., it was awarded the West Greater Toronto Area bundle, comprised of OLG Casino Brantford, OLG Slots at Mohawk Racetrack, OLG Slots at Flamboro Downs and OLG Slots at Grand River Raceway. These assets generated total gross gaming revenue of roughly $450-million in fiscal 2017. Great Canadian Gaming will own 55 per cent of the newly formed partnership with Clairvest and Clairvest will hold a 45-per-cent ownership position. The partnership's acquisition of the gaming assets is expected to be completed in the spring of 2018.
Additionally, in August, the company was awarded the Greater Toronto Area Bundle in a partnership with Brookfield Business Partners L.P. This gaming bundle generated over $1-billion in gross gaming revenue in 2016. This acquisition of gaming assets is expected to be completed in January 2018.
Looking back to its most recent financial results, the company reported third-quarter earnings shy of expectations after the market closed on Nov. 9. The earnings miss sent the share price falling nearly 6 per cent the following trading day. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) came in at $62.7-million, below the Street's expectations of $68.4-million. The company experienced a decline in adjusted EBITDA at River Rock, its Richmond, B.C. gaming facility, as "wagering increased at River Rock but the site experienced low table hold this quarter mainly due to high win rate from VIP players" according to the CEO, Rod Baker.
On the earnings call, Mr. Baker addressed concerns about its practices at River Rock stating, "At the outset, I would like to address recent media reports, in particular articles relating to River Rock and the allegation pertaining to money laundering activities at BC's casinos. The company provided a statement regarding these reports on October 23, which clearly explain Great Canadian's role in the anti-money laundering regulatory framework in BC. Great Canadian is fully supportive of the review that is currently underway and we'll implement any additional anti-money laundering policies and practices required by the BCLC or our regulators. I would like to emphasize the following. Contrary to any media reports or commentary, Great Canadian is not under investigation regarding anti-money laundering activities. We do not believe our company's actions would give cause to an investigation. Great Canadian has a culture of integrity and transparency founded on our strict compliance with all financial reporting, anti-money laundering and associated regulations and contract bid processes in all jurisdictions where we do business. Great Canadian follows all policies and procedures with regard to anti-money laundering directed by the BCLC and other regulatory agencies."
Dividend policy
Management is focused on growth an currently does not pay its shareholders a dividend.
Analysts' recommendations
There are five analysts that cover this mid-cap stock with a market capitalization of $2.1-billion, of which two analysts have buy recommendations and three analysts have hold recommendations.
The five firms providing research coverage on the company are as follows in alphabetical order: Canaccord Genuity, Cormark Securities, RBC Capital Markets, Scotia Capital, and TD Securities.
Revised recommendations
Analysts have made minor adjustments to their target prices.
This week, Damir Gunja, the analyst from TD Securities, bumped his target price up to $37 from $36.
In November, Sabahat Khan, the analyst at RBC Capital Markets, trimmed his target price to $40 (the high on the Street) from $41. Derek Dley from Canccord Genuity reduced his target price to $38 from $39. David McFadgen from Cormark Securities increased his target price to $34 (the low on the Street) from $33.
Financial forecasts
The Street is forecasting EBITDA of $224-million for 2017, increasing 17 per cent to $262-million in 2018. The consensus earnings per share estimates are $1.45 in 2017, rising over 25 per cent to $1.82 in 2018.
Earnings forecasts have increased notably for 2018. For instance, five months ago, the Street was forecasting EBITDA of $225-million for 2017 and $236-million for 2018. The consensus earnings per share estimates were $1.48 for 2017 and $1.61 for 2018.
Valuation
The stock is trading at an enterprise value-to-EBITDA multiple of 8.7 times the 2018 consensus estimate, near its peak multiple of 9 times. However, we may see positive earnings revisions once the GTA and West GTA Bundle transactions are completed in 2018, which would make the stock's valuation more compelling. Furthermore, analysts may soon be rolling forward their target prices and be based on their 2019 earnings expectations.
The consensus target price is $36,80, suggesting there is 7 per cent upside potential. Individual target prices are as follows in numerical order: $34, $35, $37, $38 and $40.
Insider transaction activities
Quarter-to-date, there has only been one transaction reported by an insider. On Nov. 14, board member Karen Keilty purchased 2,000 shares at an average price per share of $29.68, lifting her portfolio position to 5,000 shares.
Chart watch
The share price can be volatile, frequently experiencing parabolic moves both to the upside as well as to the downside. On Tuesday, the share price experienced one such dramatic move, jumping 15 per cent on high volume. Over 1.1-million shares traded on Tuesday, well above the three-month historical daily average trading volume of approximately 288,000 shares. Year-to-date, the share price is up nearly 38 per cent.
Looking at key overhead resistance and downside support levels, there is initial overhead resistance around $35, near its record closing high of $35.32. After that, the stock price faces significant resistance around $40. There is initial downside support around $30, near its 50-day moving average (at $30.57). Failing that, there is support around $27.50, close to its 200-day moving average (at $27.62) and strong support around $25.
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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.