On today’s TSX Breakouts report, there are 64 stocks on the positive breakouts list (stocks with positive price momentum) and 39 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a stock that is on the positive breakouts list with its share price climbing over 32 per cent year-to-date, closing at a record high on Monday on high volume. Management is firmly committed to returning capital to its shareholders, announcing dividend increases for the past three consecutive quarters. The stock has a current dividend yield of 1.6 per cent.
The security discussed today is Equitable Group Inc. (EQB-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Toronto-based Equitable Group, through its subsidiary operates Equitable Bank, which provides digital banking services to over 76,000 retail and commercial customers through its branchless banking model. Equitable Bank is the ninth largest independent Schedule 1 bank in the country as measured by assets under management, which stands at approximately $31-billion. The company provides mortgage loans and savings products such as HISA’s (high interest savings accounts) and GIC’s (guaranteed investment certificates) to its customers.
After the market closed on May 9, the company reported its first-quarter financial results. Adjusted earnings per share came in at $2.72, up 16 per cent year-over-year but falling short of the Street’s expectations of $2.75. Adjusted ROE (return on shareholders’ equity) was strong at 15 per cent. However, the CET 1 capital ratio (common equity tier 1) declined to 12.9 per cent from 13.5 per cent reported last quarter, which management attributed to the Bennington acquisition. On the earnings call, the chief executive officer Andrew Moor remarked, “Our intention is to replenish this ratio organically over the course of 2019 and expect it to be around our target level of 13.5 per cent by year-end.” NIM (net interest margin) was 1.67 per cent, up from 1.58 per cent reported last quarter. The chief financial officer Tim Wilson added on the call that, “NIM should gradually increase over the course of the year to reach a range of 1.75 per cent to 1.8 per cent” by the fourth quarter of this year. Provisions for credit losses was $9.6-million.
In the MD&A (management’s discussion and analysis), the following guidance for 2019 was provided, “Based on current market assessments, the bank's growing loan portfolio, the outlook for higher margins and the Bennington acquisition, management believes that strong growth will continue for the balance of this year with assets expected to increase 10 per cent to 12 per cent, adjusted earnings to be up 15 per cent to 17 per cent and ROE to remain in the 15 per cent range.” On the conference call, the CEO said, “Looking ahead, recent economic data supports our view that risk in the residential real estate market has moderated in recent quarters in most markets”, providing support for his positive outlook.
The following trading day, the share price edged marginally lower on normal volume, declining 38 cents, or 0.5 per cent, to close at $72.95.
The company will be releasing its second-quarter financial results after the market closes on July 30 with an earnings call taking place the following morning.
The Street is expecting the company to report earnings per share of $2.79.
Dividend policy
The company pays its shareholders a quarterly dividend of 31 cents per share or $1.24 per share yearly. This equates to an annualized dividend yield of 1.6 per cent.
Management has been steadily increasing its dividend, announcing dividend hikes for the past three consecutive quarters. On May 9, management announced a 3-per-cent increase, raising its quarterly dividend to its current level of 31 cents per share from 30 cents per share.
Analysts’ recommendations
There are seven analysts covering this small-cap stock with a market capitalization of $1.3-billion, of which four analysts have buy recommendations and three analysts have neutral recommendations.
The firms providing research coverage on the company are as follows in alphabetical order: BMO Nesbitt Burns, CIBC World Markets, Cormark Securities, National Bank Financial, RBC Dominion Securities, Scotiabank and TD Securities.
Revised recommendations
This month, two analysts revised their expectations – both higher.
RBC’s Geoffrey Kwan upgraded the stock to an “outperform” recommendation from a “sector perform” recommendation and lifted his target price to $96 from $84.
Phil Hardie, an analyst from Scotiabank, increased his target price to $86 from $80.
Financial forecasts
The Street is anticipating the company to report earnings per share of $11.57 in 2019, rising over 10 per cent to $12.81 in 2020.
Earnings forecasts have been edging higher. For instance, three months ago, the consensus earnings per share estimates were $11.44 for 2019 and $12.39 for 2020.
Valuation
According to Bloomberg, the stock is trading at a price-to-earnings multiple of 6.1 times the 2020 consensus estimate, slightly below its three-year historical average multiple of 7.1 times, and at a price-to-book value of less than 1 times. In comparison, the Big 5 banks are trading at forward P/E multiples ranging from 8.2 times (CIBC) to 11 times (Royal Bank).
The average one-year target price is $86.50, suggesting there is 10 per cent upside potential in the stock price over the next 12 months. Individual target prices are as follows in numerical order: $83 (the low on the Street is from Jaeme Gloyn, an analyst at National Bank Financial), $84, two at $85, $86, $94 and $96 (the high on the Street is from Geoffrey Kwan at RBC Dominion Securities).
Insider transaction activities
On June 27, the company’s chief financial officer Tim Wilson, exercised his options, receiving 2,000 shares at a cost per share of $36.11, and sold 2,000 shares at a price per share of $72.70 with 23,540 shares remaining in his portfolio. Net proceeds, not including commission charges, totaled just over $73,000.
On June 20, Brian Leland, senior vice-president – residential lending, exercised his options, receiving 1,936 shares at a cost per share of $52.90 and sold 1,936 shares at a price per share of $72.50 with 402 shares remaining in left in his portfolio. Net proceeds, excluding brokerage fees, totaled just under $38,000.
On May 17, chief digital officer Dan Dickinson exercised his options, receiving 3,000 shares at a cost per share of $46.65, and sold 3,000 shares at an average price per share of approximately $71.15, leaving 654 shares in his account. Net proceeds, not including commission fees, totaled over $73,000.
Chart watch
Year-to-date, the share price is up over 32 per cent and closed at a record high on Monday on high volume with over 266,000 shares traded, well above the three-month historical daily average trading volume of just under 50,000 shares.
In terms of key resistance and support levels, the share price is approaching an initial ceiling of resistance around $80. In terms of downside support, there is initial technical support between $70 and $72, close to its 50-day moving average (at $71.49).
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.