On Tuesday, major North American stock markets all closed the trading session in positive territory.
In the U.S., the Dow Jones Industrial Average increased 1.12 per cent, the S&P 500 index gained 0.61 per cent, and the Nasdaq composite index advanced 0.70 per cent.
In Canada, the S&P/TSX composite index rallied 33 points, or 0.21 per cent. There were 143 securities in the TSX Index that advanced, 103 securities declined in value, and five stocks closed the day unchanged.
The TSX Index is up 2.99 per cent year to date.
On today's TSX Breakouts report, there are 47 stocks on the positive breakouts list (stocks with positive price momentum), and 41 stocks are on the negative breakouts list (stocks with negative price momentum).
Featured today is an industrial stock that has been under pressure but is holding above a level that would place it on the negative price breakout list. The stock offers investors a 3 per cent dividend yield, which appears sustainable. Management is committed to returning capital to its shareholders and announced an 8.7 per cent dividend hike last month. There are 11 buy recommendations with the Street forecasting 20 per cent upside potential in the share price over the next year. The security I am referred to is Aecon Group Inc. (ARE-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Aecon is a construction and infrastructure development company serving both the private and public sectors. The company operates in three core market segments: energy, infrastructure, and mining.
After the market closed on March 7, the company reported better-than-expected fourth quarter financial results. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $64.7-million, ahead of the consensus estimate of $58.7-million. EBITDA margins expanded to 7.7 per cent from 6.6 per cent during the same period last year. The company's backlog stood at $4.2-billion, up from $3.26-billion last year. The solid results sent the share price soaring 6 per cent the following trading day on very high volume.
In the recent Management's Discussion and Analysis, management provided a positive outlook stating, "Following a year in 2016 that saw 10 per cent revenue growth, 2017 is expected to be a year of significant bidding activity that will build backlog for 2018 and beyond. As such, although backlog at the start of 2017 will be supplemented by projects awarded in 2017 for work off in the same year and by higher expected recurring revenue from master service agreements in 2017, overall revenue expectations for 2017 are for flat to modestly lower volume. Offsetting this is an expectation that Adjusted EBITDA margin improvement in 2017 will result in an overall improvement in Adjusted EBITDA in the year."
Dividend policy
The company has announced a dividend increase in March of every year since 2012, and it did so again last month. The board of director's approved a 8.7 per cent increase in its annual dividend, raising it to 50 cents from 46 cents.
The company pays shareholders a quarterly dividend of 12.5 cents per share, or 50 cents per share on a yearly basis. This equates to an annualized yield of 3.1 per cent.
Analysts' recommendations
There are 12 firms providing recent research coverage on the company, of which 11 analysts have buy recommendations, and one analyst (at RBC Capital Markets) has a 'sector perform' recommendation.
Revised recommendations
Analysts' expectations have increased.
Last month, several analysts increased their target prices. Maxim Sytchev, the analyst from National Bank Financial, increased his target price to $20.50 from $19. Frederic Bastien, the analyst from Raymond James, increased his target price by $2 to $19. Benoit Poirier, the analyst from Desjardins Securities, raised his target price to $19 from $18. Corey Hammill, the analyst from Paradigm Capital, raised his target price by $1 to $19. Jacob Bout, from CIBC World Markets, also increased his target price by a dollar, to $20. Ben Jekic, the analyst from GMP, tweaked his target price higher by 50 cents to $19. Anthony Zicha, the analyst from Scotia Capital, bumped his target price to $19 from $18.
Financial forecasts
The Street is forecasting EBITDA of $172-million in 2017, up from $158-million in 2016, with EBITDA forecast to reach $190-million in 2018. The consensus earnings per share estimates are 94 cents for 2017 and $1.16 for 2018.
Valuation
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 5.4 times the consensus 2018 estimate, slightly below its three-year historical average of 5.6 times.
The average 12-month target price is $19.38, implying upside potential of just under 20 per cent over the next 12 months. Analysts have target prices ranging from a low of $17 to a high of $20.50. Individual target prices are quite concentrated and are as follows in numerical order: $17, five at $19, $19.50, three at $20, and two at $20.50.
Insider transaction activity
There has been no reports of acquisition or disposition activities in the public market so far this year.
Chart watch
The share price has been under pressure in recent weeks, falling 6 per cent month-to-date.
Year to date, the stock price is up 6 per cent, slightly underperforming the S&P/TSX Industrial Index, which is higher by 7.7 per cent, but still outperforming the broader market with the S&P/TSX composite index up 2.99 per cent.
The relative strength index was 38, suggesting the stock price is approaching oversold territory. Generally, a reading at or below 30 indicates an oversold condition.
The share price has initial overhead resistance around $17. After that, there is upside resistance around $18, and then close to $19.
Should the stock price drift lower, there is downside support around $15.50. If the share price breaks meaningfully below this level, the stock price could fall back to a $14 handle.
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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.