On today’s TSX Breakouts report, there are 67 stocks on the positive breakouts list (stocks with positive price momentum), and 28 stocks 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 closing at a record high on Monday. Last quarter, this growth stock reported record revenue, with the majority of its revenue coming from its contracts with the Canadian government. Given the relative stability of its government customers, the company has paid its shareholders a consistent quarterly dividend, which is currently yielding 3 per cent.
With a unanimous buy recommendation, the stock discussed below is Calian Group Ltd. (CGY-T).
A brief outline is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
The company
Ottawa-based Calian is a company that operates two core divisions.
The Business and Technology Services (BTS) division provides training services, health services, and IT services, and its second division, the Systems Engineering Division (SED), serves satellite communications manufacturers and operators, the aerospace and defence market, and telecommunications industries. Last quarter, 72 per cent of revenue ($63.6-million) was from the BTS division with the balance, 28 per cent ($25.2-million), from SED.
The company serves both the private and public sectors with a significant presence in the private sector. As indicated in the company’s 2018 annual report, 68 per cent of revenue was from the Canadian government, of which roughly 61 per cent of the company’s revenue stemmed from the DND (Department of National Defence).
After the market closed on Aug. 7, the company reported mixed third-quarter financial results (the company’s fiscal year end is Sept. 30). The company delivered record revenue of $88.8-million, up 21.6 per cent year-over-year, ahead of the consensus estimate of $87.5-million. However, EBITDA (earnings before interest, taxes, depreciation and amortization) was $6.7-million, below the Street’s forecast of $7.3-million. Management attributed part of this shortfall due to delays in closing some of its projects as well as higher costs. Earnings per share came in at 54 cents per share, two cents below the consensus estimate. Calian’s backlog stood at $1.397-billion at the end of the quarter. A high contract backlog reflects future potential revenue. The company has a healthy balance sheet with $18-million of cash at quarter-end. The share price declined 14 cents, or 0.4 per cent, the following trading day with over 103,000 shares traded.
On the earnings call, the president and chief executive officer Kevin Ford said, “The traditional markets in which Calian operates are stable and management expects organic revenue and earnings growth in most or all of its service lines through the successful execution of our growth strategy. However, we must caution that revenues realized are ultimately dependent on the extent of timing of future contract awards as well as customer utilization of existing contract vehicles.”
With just one more quarter to go in fiscal 2019, the company issued the following guidance for the fiscal year: revenue to be between $335-million and $355-million, EBITDA per share of between $3.40 and $3.65, and earnings per share to be between $2.05 and $2.25. On the call, the chief financial officer Patrick Houston noted, “We've reduced the EBITDA range slightly as some customer opportunities we anticipate to book and ship in our fourth quarter will shift to coming quarters.”
The company is expected to release its fourth-quarter fiscal 2019 financial results on Nov. 13. The consensus revenue, EBITDA, and earnings per share estimates are $92-million, $7.9-million, and 59 cents, respectively.
Dividend policy
The company pays its shareholders a quarterly dividend of 28 cents per share, or $1.12 per share yearly, equating to a current annualized dividend yield of 3.1 per cent.
The company has maintained its quarterly dividend at this level since 2012.
Analysts’ recommendations
This stock with a market capitalization of $286-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: Acumen Capital, Canaccord Genuity, Desjardins Securities, GMP, and ISS-EVA.
Revised recommendations
The most recent revisions occurred in August, after the company released its third-quarter financial results. Benoit Poirier, an analyst at Desjardins Securities, lifted his target price to $40 from $38. Acumen Capital’s Jim Byrne increased his target price to $40 from $37.50.
Financial forecasts
The Street is forecasting revenue of $345-million in fiscal 2019, up from $305-million reported in fiscal 2018, with revenue expected to rise to $373-million in fiscal 2020. The consensus EBITDA estimates are $27.3-million in fiscal 2019, up from adjusted EBITDA of $25-million reported in fiscal 2018, and anticipated to reach $33-million in fiscal 2020. The consensus earnings per share estimates are $2.02 in fiscal 2019 and $2.38 the following year.
Top line expectations have been relatively stable, while the bottom line forecasts have declined. For instance, three months ago, the Street was forecasting revenue of $345-million in fiscal 2019 and $373-million in fiscal 2020. EBITDA forecasts were $28.6-million for fiscal 2019 and $32.4-million for fiscal 2020. The consensus earnings per share estimates were $2.14 for fiscal 2019 and $2.45 for fiscal 2020.
Valuation
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 8.5 times the fiscal 2020 consensus estimate, in-line with its three-year historical average multiple. On a price-to-earnings basis, the stock is trading at a multiple of 15.2 times the fiscal 2020 estimate, slightly ahead of the three-year historical average of 14.6 times.
The average one-year target price is $39.25, implying the share price has over 8 per cent upside potential (a potential total return of over 11 per cent if you include the 3 per cent yield) over the next year. Target prices are quite concentrated. Individual target prices provided by four firms are as follows in numerical order: $37 (the low on the Street is from GMP’s Deepak Kaushal), and three at $40.
Insider transaction history
So far in the second half of calendar 2019, two insiders have reported trades in the public market.
Most recently, between Sept. 3 and Sept. 23, director chair of the board Ken Loeb excised his options, receiving a total of 12,000 shares at an average cost per share of approximately $19.29, and sold 12,000 shares at an average price per share of roughly $34.17, leaving 6,206 shares in his account. Net proceeds from the sales, excluding trading fees, totaled over $178,000.
On Sept. 4, director George Weber exercised his options, receiving 5,000 shares, and sold 5,000 shares at a price per share of $34.50. His remaining account balance stood at 3,367 shares.
Chart watch
On Monday, the share price closed at a record high. Year-to-date, the share price for Calian Group is up 23 per cent.
Looking at key technical resistance and support levels, the stock has a ceiling of resistance around $40. Should the share price retreat, there is strong technical support around $33, near its 200-day moving average (at $33.14).
This stock is thinly traded, which can increase volatility in the share price. The three-month historical daily average trading volume is less than 10,000 shares. For instance, on Monday only approximately 3,100 shares traded.
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.