On today’s TSX Breakouts report, there are 42 stocks on the positive breakouts list (stocks with positive price momentum), and 12 stocks are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a newly listed stock that may appear on the positive breakouts list in the future if analysts’ forecasts are correct. The Street is anticipating the stock will deliver a one-year price return of 35 per cent, or total return (including the dividend yield) of 37 per cent. The small-cap dividend stock has research coverage by several large firms with a unanimous buy recommendation.
The company highlighted below is Neo Performance Materials Inc. (NEO-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The Company
Toronto-based Neo Performance Materials is a manufacturer of rare earth and rare metal-based materials with 10 manufacturing plants located across the globe in the following countries: the U.S. (two production facilities), Canada (one facility located in Peterborough, Ontario), China (three plants), Germany(one plant), Thailand (one plant), Estonia (one plant) and South Korea (one plant located in Seoul). Applications of the company’s materials include powering smart phones and electronic devices, improving performance in motors and sensors used in vehicles including electric cars, and are used in LED lights and flat screen televisions.
In terms of geographical revenue breakdown based on the past 12 months, the regions where Neo derived its revenue were China (32 per cent), Europe (22 per cent), North America (20 per cent), Japan (16 per cent), Thailand (4 per cent), South Korea (4 per cent) and other regions (2 per cent).
The company operates three main business segments: Magnequench, Chemicals and Oxides, and Rare Metals. The Magnequech segment is the main contributor to EBITDA (earnings before interest, taxes, depreciation and amortization), reporting US $15.5-million of the EBITDA during the first-quarter of 2018 compared to the company’s total EBITDA of US $19.3-million. This segment is involved in the production of magnetic powders used in bonded magnets, a key component in motors and sensors.
On May 14, Neo reported solid first-quarter financial results. Reported revenue was US$120.2-million, just above the Street’s expectation of US $119-million. Adjusted EBITDA was US $19.3-million, exceeding the consensus estimate of US $16.7-million. Adjusted earnings per share was 25 US cents, above the consensus estimate of 20 cents.
In the earnings release, president and chief executive officer Goeff Bedford remarked, ““We had a very good first quarter of 2018, supported by many of the global macro growth trends such as electrification of vehicles and more stringent air emission standards that we expect will continue to drive demand for our products. As we look ahead, our company is well positioned in the markets we serve with a strong balance sheet and robust free cash flow.” As at March 31, the company had U.S.$94.5-million of cash on their balance sheet, representing approximately $3 (Canadian) per share.
The company will host its first annual general meeting as a public company on June 25.
The stock began trading on the Toronto Stock Exchange on Dec. 8, 2017. The initial public offering price was $18 per share.
Dividend Policy
The company pays its shareholders a quarterly dividend of 9.5 cents per share, or 38 cents per share on a yearly basis. This equates to an annualized dividend yield of 2.1 per cent.
During the first quarter, the company repurchased $0.2-million worth of shares as part of its share buyback program, which began on March 21.
Analysts’ Recommendations
This small-cap stock with a market capitalization of $723-million is covered by five analysts, and all five analysts have buy recommendations.
The firms providing research coverage on the company are as follows in alphabetical order: Canaccord Genuity, CIBC Capital Markets, Cormark Securities, RBC Capital Markets and Scotia Capital.
Revised Recommendations
Earlier this month, two analysts revised their target prices. Mark Neville from Scotia Capital bumped his target price up to $25 from $23. Scott Fromson, the analyst from CIBC Capital Markets, increased his target price to $23 from $22.
Financial Forecasts
Financial expectations have increased modestly. For instance, four months ago, the consensus revenue estimates were US$465-million in 2018 and US $495-million in 2019. The Street was anticipating EBITDA of US $69.7-million in 2018 and US $75.1-million in 2019. The consensus earnings per share estimates were 89 US cents for 2018 and 96 US cents for 2019.
Valuation
According to Bloomberg, the stock is trading at a price-to-earnings multiple of 14 times the 2019 consensus estimate and on an enterprise value-to-EBITDA basis, the stock is trading at 5.9 times the 2019 consensus estimate.
The consensus one-year target price is $24.40, suggesting the share price may increase 35 per cent over the next 12 months. Individual target prices are as follows in numerical order: $23, two at $24, $25 and $26.
Insider Transaction History
Year-to-date, there has been no buying or selling activity in the public market reported by insiders.
Chart Watch
The stock has a limited trading history since it just began trading on the Toronto Stock Exchange in December 2017. Consequently, this limits the usefulness of technical analysis.
The share price is relatively unchanged from its initial public offering (IPO) price of $18. However, the stock price has been volatile, trading as low as $13.87, or 23 per cent below its IPO price, on March 6. The stock is thinly traded, which can increase the price volatility. The three-month historical daily average trading volume is approximately 42,000 shares.
In terms of key technical resistance and support levels, the share price has initial overhead resistance around $18.50. Looking at the downside, the stock price has initial support around $17.50, near its 50-day moving average (at $17.59). Failing that, there is support around $17.
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.