On today's TSX Breakouts report, there are 36 stocks on the positive breakouts list (stocks with positive price momentum), and 14 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a growth stock that may resurface on the positive breakouts list in 2018. The stock has a unanimous buy call from eight analysts with an expected return of 23 per cent. The security I am referring to is MedReleaf Corp. (LEAF-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Markham, Ont.-based MedReleaf Corp. is a North American licenced cannabis producer with two facilities, both located in Ontario.
The company has a 55,000 square foot plant in Markham with 7,000 kilograms per year of cultivation capacity, and a 210,596 square foot facility in Bradford. The company is currently expanding its Bradford facility with construction anticipated to be completed by the end of the summer in 2018. Once completed, the company's total cultivation capacity is expected to reach 35,000 kilograms per year, up from 12,600 kilograms per year, with 28,000 kilograms per year of capacity derived from the Bradford facility.
The company is a dominant industry producer. According to the company's investor presentation published earlier this month, for the 12-month period ending June 2017, MedReleaf's Canadian medical dried cannabis market share stood at 18 per cent.
The company's cash cost per gram is low. For the three months ended Sept. 30, the cash cost per gram was $1.46.
On Dec. 21, the company announced that it entered into an agreement with Shoppers Drug Mart to be one of their medical marijuana suppliers, contingent on Shoppers Drug Mart receiving approval from Health Canada to be a licenced producer. Sales are anticipated to be fulfilled online as current regulation prohibits the sale of medical cannabis in retail pharmacies. Earlier in the month, fellow marijuana producer Aphria Inc. (APH-T) announced that it had also entered into a supply agreement with Shoppers Drug Mart for medical cannabis.
On Dec. 4, the company completed a $100.5-million bought deal financing, offering shares at a price of $16.55 per share. Proceeds from the equity raise are targeted to fund the company's growth. Management is reviewing international opportunities and has identified Australia as a potential target market. Brazil and Germany are two additional potential market opportunities.
The company's senior management team includes Neil Closner, the Chief Executive Officer and former Vice-President of Business Development at Mount Sinai Hospital. The company's Chief Operating Officer Donald Courtney previously held positions at Vincor International, Pepsi Canada, Mars Inc. and served as COO at LG Electronics Canada.
Dividend policy
The company is focused on growth and as a result does not pay its shareholders a dividend.
Analysts' recommendations
This small-cap stock is well covered by the Street with research coverage from eight analysts – all eight analysts have buy recommendations. More specifically, five analysts have buy recommendations and three analysts have "speculative buy" recommendations.
The eight firms providing research coverage on the company are as follows in alphabetical order: Canaccord Genuity, Clarus Securities, Cormark Securities, Cowan, Echelon Wealth Partners, Eight Capital, GMP, and PI Financial.
Revised recommendations
In recent weeks, analysts have been revising their expectations higher for this stock.
This month, Jesse Pytlak, the analyst at Cormark Securities, lifted his target price to $19 from $17. Noel Atkinson from Clarus Securities increased his target price by $5 to $19. Analyst Matt Bottomley from Canaccord Genuity tweaked his target price to $21.50 from $20. Vivien Azer from Cowen boosted her target price to $20 from $11.
Last month, Martin Landry from GMP raised his target price to $20 from $14. Daniel Pearlstein from Eight Capital lifted his target price to $20 from $13. Finally, Jason Zandberg from PI Financial increased his target price to $20 from $14.50.
Financial forecasts
The Street is forecasting solid growth for the company in the upcoming years.
Looking at the top line, sales are forecast to be $46-million in fiscal 2018 (March 31 is the company's fiscal year-end), $150-million in fiscal 2019, and $282-million in fiscal 2020. EBITDA (earnings before interest, taxes, depreciation and amortization) is anticipated to reach $6-million in fiscal 2018, $51-million in fiscal 2019, and $108-million in fiscal 2020. The company is forecast to report earnings in fiscal 2019 of 31 cents per share rising to 72 cents per share in fiscal 2020.
Earnings forecasts have increased for fiscal 2019 and 2020. For instance, three months ago, the consensus EBITDA estimates were $45-million in fiscal 2019 and $76-million in fiscal 2020.
Valuation
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 13.7 times the fiscal 2020 consensus estimate, a discount to its larger cap peers, Canopy Growth Corp. (WEED-T) and Aphria Inc. (APH-T).
The consensus one-year target price is $20.06, implying there is 23 per cent upside potential in the share price over the next 12 months. Individual target prices range from a low of $19 (at Clarus Securities and Cormark Securities) to a high of $21.50 (at Canaccord Genuity). Individual target prices are as follows in numerical order: two at $19, four at $20, $21 and $21.50.
Insider transaction activities
Looking back to the beginning of September, there have been no transactions in the public market reported by insiders.
Chart watch
The share price is up 72 per cent from its initial public offering price of $9.50 set back in June of this year.
The stock has a limited trading history making technical analysis a challenge. That being said, there appears to be overhead resistance around $18, near its record closing high from Nov. 13 (at $18.38). After that, there is resistance around $20. In terms of downside support, there is strong support between $15 and $16, which is near its 50-day moving average (at $14.80).
This small-cap stock with a market capitalization of $1.5-billion has reasonable liquidity. The three-month historical daily average trading volume is approximately 474,000 shares.
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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.