On today’s TSX Breakouts report, there are 51 stocks on the positive breakouts list (stocks with positive price momentum), and 19 stocks are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a stock that appears on the positive breakouts list with its share price closing at an all-time high on Thursday. Analysts have positive outlooks on the security with 14 buy recommendations. Earlier this month, the company announced a change to its dividend policy, which is expected to result in meaningful increases to its dividend over the next few years. Discussed below is Quebecor Inc. (QBR.B-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Quebec-based Quebecor Inc. is a telecommunications and media holding company with an 81.5-per-cent interest in Quebecor Media Inc. Quebecor has three key business segments: telecommunications with its core asset, Videotron Ltd.; the media segment, with the television broadcaster, TVA Group; and its smallest segment, sports and entertainment.
On May 8, the company made an important and positive announcement accompanying the release of its first quarter earnings results. It reached an agreement to repurchase the Caisse de dépột et placement du Québec’s 18.5 per cent stake in Quebecor Media Inc. The $1.69-billion proposed transaction would improve the stock’s valuation, removing Quebecor’s holding company discount. The transaction is expected to be completed next month, by June 22. Operationally, the company reported solid earnings. During the first quarter, revenue came in at $1.01-billion, up 0.5 per cent year-over-year. Reported EBITDA (earnings before interest, taxes, depreciation and amortization) was $407.4-million, above the Street’s expectations of $387.5-million. The share price rallied 3 per cent that day.
Returning capital to shareholders
The company pays its shareholders a quarterly dividend of 5.5 cents per share, or 22 cents on a yearly basis. This equates to an annualized dividend yield of 0.9 per cent.
Since 2015, management has announced a dividend increase once a year, in May, and this year was no different. Last month, the company announced a 100 per cent dividend hike, increasing the dividend to 5.5 cents per share from 2.75 cents per share.
However, investors can expect the payout ratio and dividend to increase materially over the coming years. Within the release of the company’s first quarter earnings results management stated, “The Board of Directors of Quebecor has examined the dividend policy and has set a dividend target of 30 per cent to 50 per cent of the Corporation’s annual free cash flows, to be achieved gradually by the end of a four-year period.” This dividend policy change will significantly increase the dividend yield to one that is closer to its peers. The dividend yields for Rogers Communications, BCE, and Telus are 3.1 per cent, 5.5 per cent and 4.6 per cent, respectively.
In addition, the company was active in its share buyback program, repurchasing 4,125,800 shares during the first quarter.
Analysts’ recommendations
There are 15 analysts providing research coverage on this company of which 14 analysts have buy recommendations and one analyst (from EVA Dimensions) has a “hold“ recommendation.
The 15 firms providing research coverage are as follows in alphabetical order: Accountability Research, Barclays, BMO Capital Markets, Canaccord Genuity, CIBC World Markets, Cormark Securities, Desjardins Securities, Echelon Wealth Partners, EVA Dimensions, Macquarie, National Bank Financial, RBC Capital Markets, Scotia Capital, TD Securities and Veritas Investment Research.
Revised recommendations
Earlier this month, 11 analysts revised their expectations – all higher.
Tim Casey, the analyst from BMO Capital Markets, raised his target price to $30 from $28.50. Bob Bek from CIBC Capital Markets lifted his target price by $1 to $29. Maher Yaghi, the analyst from Desjardins Securities, increased his target price to $31.50 from $29. Jeffrey Fan, the analyst from Scotia Capital, tweaked his target price higher to $31 from $30. Aravinda Galappatthige from Canaccord Genuity raised his target price to $26.50 from $25.50. Dave McFadgen from Cormark lifted his target price by $1.50 to $30. David Donovan from Accountability Research increased his target price to $30 from $27.50. Barclays’ analyst Phillip Huang raised his target price to $32 from $29. Rob Goff from Echelon Wealth Partners revised his target price to $30 from $28.50. Desmond Lau from Veritas bumped his target price to $28 from $27. Anthony Campagna from EVA Dimensions upgraded his recommendation to a “hold“ from “underweight.”
Financial forecasts
The Street is forecasting EBITDA of $1.7-billion in 2018, rising to $1.76-billion in 2019. Earnings per share is anticipated to come in at $1.70 in 2018 and increase to $1.91 in 2019.
In recent months, financial expectations have increased. For instance, four months ago, the consensus EBITDA estimates were $1.66-billion for 2018 and $1.75-billion for 2019, and earnings per share expectations were $1.60 for 2018 and $1.74 for the following year.
Valuation
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 6.9 times the 2019 consensus estimate, in-line with its three-year historical average multiple. This is at a discount relative to its telecom peers, Rogers, BCE, and Telus.
The consensus one-year target price is $29.30, suggesting the stock may deliver a 15 per cent price return to investors over the next 12 months.
Target prices range from a low of $26.50 (from the analyst at Canaccord Genuity) to a high of $32 (from the analyst at Barclays). Individual target prices provided by 14 firms are as follows in numerical order: $26.50, $27, $27.50, $28, two at $29, five at $30, $31, $31.50 and $32.
Insider transaction activity
Year-to-date, there has not been any buying or selling activity in the public market reported by insiders.
Chart watch
Year-to-date, the stock has outperformed its telecom peers, rallying 7 per cent. In comparison, the share price of Rogers Communications is down 4 per cent, BCE’s share price is down 10 per cent, Telus’ stock price is down 5 per cent.
That being said, the share price has been locked in a trading range for nearly the past year, trading predominately between $23 and $25, and is currently at the upper band of that trading range.
In terms of key resistance and support levels, there is initial overhead resistance around $26, and after that around $30. Looking at the downside, there is strong support between $23 and $24, near its 50-day moving average (at $24.34) and close to its 200-day moving average (at $23.98).
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.