On today’s TSX Breakouts report, there are 19 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 is just one per cent away from appearing on the positive breakouts list – Jamieson Wellness Inc. (JWEL-T).
Next week, the company will be reporting its third-quarter earnings results. For the past three consecutive quarters, the share price has rallied between 9 per cent and 11 per cent the day after the company released its quarterly earnings. China remains a growth opportunity for the company.
On the upcoming earnings call, it will be interesting to see if management addresses the impact of the first Costco store that opened in China in late August, which Jamieson supplies.
For long-term investors, the company appears to have multiple opportunities (i.e. new product launches, new markets) to support its growth. From a valuation perspective, the share price is currently trading slightly above its historical trading averages.
A brief outline is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
The company
Toronto-based Jamieson Wellness manufactures and distributes natural health products. The Jamieson brand is the best-selling brand by sales in Canada within the VMS (vitamins, minerals, and supplements) market.
For the past three consecutive quarters, the share price has rallied by over 9 per cent the day after the company reported its quarterly financial results.
On Aug. 8, the company reported better-than-expected second-quarter financial results. Revenue increased 8.6 per cent year-over-year to $80.6-million, ahead of the Street’s forecast of $78.5-million, with growth from both its branded domestic sales as well as international sales. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $16.4-million, beating the consensus estimate of $15.8-million and up 15.8 per cent year-over-year. Adjusted earnings per share came in at 20 cents, two cents above the consensus estimate. The share price rallied 10 per cent the following trading day on high volume with over 250,000 shares traded.
China is a country of interest to Jamieson given that the country is the second largest vitamin market worldwide. Jamieson participated in Costco’s initial success during its inaugural store opening in China (Shanghai) on Aug. 27.
On the earnings call, Endri Leno, an analyst at National Bank Financial asked, “So Costco generally, at least from their remarks is that they tend to open 10 stores, so they tend to need 10 stores at any given country to breakeven or achieve profitability. Like how does that square with your expectations of growth in terms of capacity and like any thoughts around that?”
Chief executive officer Mark Hornick responded, “So I can’t comment on Costco’s strategy or profitability model. That would be for them to discuss with you. But from our perspective, Costco is proceeding in what seems to be fairly normal for them in terms of starting with one warehouse, then proceeding with another, another, et cetera. Right now, they’re going to start in Shanghai, which is a population base of more than 30 million people. So you’ve got their first foray into a market, almost the size of Canada, in a market which is very pro vitamin, very high vitamin penetration, very high vitamin usage and there is no doubt that in our mind that that’s going to attract a lot of local attention in support from the Chinese consumer. And then, based on the success that they have there, they will continue to roll out as they see fit.”
In addition, Jamieson is expanding its distribution network with local food and drug stores in China.
Management does not see near-term acquisition opportunities. On the earnings call, Chris Snowden said on valuations, “I think they’ve come down a little bit in the last year as you’ve seen markets contract and the expectation for public market multiples to come down a little bit as well. But I still think they’re higher than what we’re willing to pay on average. So we will be very disciplined, and as I’ve mentioned before, we’re targeting 20 per cent IRR (internal rate of return) on any M&A (merger and acquisition) opportunity. So we’ve got very high standards from a synergy and accretion perspective.”
On the earnings call, management indicated that they are currently on target to come in at the upper end of their 2019 guidance provided on Feb. 27. Management expects to realize revenue of between $336-million and $348-million, adjusted EBITDA of between $73-million and $76-million, and adjusted earnings per share of between 90 cents and 95 cents. The chief financial officer Chris Snowden said, “We anticipate Jamieson brand growth segment of 5 per cent to 9 per cent, including 3 per cent to 5 per cent growth in the Jamieson brand domestically, 25 per cent to 35 per cent growth internationally and specialty brands growth of 1 per cent to 5 per cent.”
Looking forward, management maintained its guidance, expecting revenue of between $390-million and $410-million, adjusted EBITDA of between $95-million and $100-million and adjusted EBITDA margins ranging from 23.8 per cent to 25 per cent by the end of 2021.
The company will be releasing its third-quarter financial results after the market closes on Wednesday, Nov. 6 and hosting a conference call that day at 5 p.m. (ET).
The consensus revenue, EBITDA, and earnings per share estimates are $85-million, $18.5-million, and 22 cents, respectively.
Dividend policy
The company pays its shareholders a quarterly dividend of 10 cents per share, or 40 cents per share on a yearly basis, translating to a current annualized dividend yield of 1.6 per cent.
Since the stock was publicly listed in July 2017, the company has announced two dividend hikes, in August of 2018 and August of 2019.
Analysts’ recommendations
This small-cap consumer staples stock with a market capitalization of $951-million is actively covered by six analysts, and all six analysts have buy recommendations.
The firms providing recent research coverage on the company are as follows in alphabetical order: BMO Nesbitt Burns, CIBC World Markets, ISS-EVA, National Bank Financial, RBC Dominion Securities, and Scotiabank.
Revised recommendations
The most recent revisions occurred in several months ago.
In August, BMO’s Peter Sklar increased his target price to $25 from $24. Scotiabank’s George Doumet lifted his target price to $24 from $22.
Financial forecasts
The Street is forecasting revenue of $343-million in 2019, up from $320-million reported in 2018 and $301-million realized in 2017, with revenue expected to rise to $371-million in 2020. The consensus EBITDA estimates are $75-million in 2019, up from $67.6-million reported in 2018 (adjusted EBITDA margin of 21.1 per cent in 2018), and anticipated to reach $82-million in 2020. The consensus earnings per share estimates are 94 cents in 2019 and $1.08 in 2020.
Earnings expectations have been relatively stable for this year and next year. For instance, three months ago, the Street was forecasting revenue of $343-million in 2019 and $370-million in 2020. EBITDA forecasts were $74-million for 2019 and $81-million for 2020. The consensus earnings per share estimates were 93 cents for 2019 and $1.07 for 2020.
Valuation
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 13.6 times the 2020 consensus estimate, above its two-year historical multiple (since it began trading in mid-2017) of 12.9 times. The stock is trading at a price-to-earnings multiple of 22.7 times the 2020 consensus estimate, above its historical average multiple of 20.8 times but below its peak multiple of just under 26 times.
The average one-year target price is $25.20, implying the share price is nearly fully valued with just 3 per cent upside potential over the next year. Individual target prices provided by five firms are as follows in numerical order: $24 (the low on the Street is from George Doumet, the analyst at Scotiabank), three at $25, and $27 (the high on the Street is from Matt Bank, the analyst at CIBC Capital Markets).
Insider transaction history
Several recent and notable transactions are listed below.
Most recently, on Sept. 12, chief science and innovation officer John Doherty, exercised his options, receiving 21,000 shares and sold 21,000 shares at a price per share of $23.80, leaving 15,648 shares in his account.
Between Sept. 6 and Sept. 10, chairman David Williams acquired a total of 50,000 shares for two accounts at an average price per share of approximately $24.51. After these purchases, his personal trading account held 150,000 shares.
On Aug. 29, president, chief executive officer and director Mark Hornick exercised his options, receiving 581,180 shares, and sold 160,000 shares at a price per share of $23.80 with 483,543 shares remaining in his account.
Chart watch
The stock began trading on the Toronto Stock Exchange in July 2017. Given the stock’s brief trading history, technical analysis is limited.
Year-to-date, the share price is up over 14 per cent, relatively in-line with the S&P/TSX Composite Index and the S&P/TSX consumer staples sector index, which are up 14.5 per cent and 12.8 per cent, respectively.
Looking at key technical resistance and support levels, the stock has a major ceiling of resistance is around $27.50, close to its record closing high of $27.43 reached on June 14, 2018. Should the share price retreat, there is initial technical support around $23, near its 50-day moving average (at $23.58). Failing that, there is technical support around $22, and strong technical support around $20, which is close to its 200-day moving average (at $20.66).
This small-cap stock can be thinly traded, which can increase volatility in the share price. The three-month historical daily average trading volume is approximately 90,000 shares.
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.