On today’s TSX Breakouts report, there are 30 stocks on the positive breakouts list (stocks with positive price momentum), and 25 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a value stock that may appear on the positive breakouts list in the future if analysts’ expectations are accurate. The stock has 13 buy recommendation with an expected one-year return of over 30 per cent. The company will have to report solid earnings in order to regain investors’ confidence and lift the share price materially higher. The company is expected to report its quarterly results in a few weeks. The security highlighted today is Alimentation Couche-Tard Inc. (ATD.B-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Quebec-based, Alimentation Couche-Tard is a leading convenience store operator with operations across the globe. As of Feb. 4, the company had 10,020 convenience stores in North America and 2,730 stores in Europe.
Stores are being rebranded to a new global banner, “Circle K.” However, in Quebec, stores will retain the original “Couche-Tard” banner. The company also has more than 1,900 stores operated internationally under licensing agreements in 14 countries and territories including China, Hong Kong, and Mexico. The company’s growth has historically been fueled by acquisitions. Its most recent acquisition of Holiday Stationstores Inc. was completed in December 2017.
Before the market opened on March 20, the company reported weaker-than-expected third-quarter fiscal 2018 financial results. Adjusted earnings per share came in at 54 US cents, well below the consensus estimate of 71 US cents per share. A contributing factor to the weakness in earnings was lower fuel margins in the U.S. The share price collapsed over 6 per cent that day on high volume with over 6.7-million shares traded. The three-month historical daily average trading volume is under 2-million shares.
On the earnings call, president and chief executive officer Brian Hannasch remarked on the lower fuel margins, “Although this quarter’s margins were impacted by the rapid and significantly rising crude prices, which compressed retail margins, particularly in our Southwest and Western U.S. markets, we believe margins will increase over time and this is a cyclical nonstructural market dynamic. We continue to see solid U.S. margins year-to-date.”
Dividend policy
The company pays shareholders a quarterly dividend of 9 cents per share, or 36 cents on a yearly basis. This equates to an annualized dividend yield of 0.6 per cent.
The company has maintained its dividend at this level since late 2016.
Analysts’ recommendations
There are 14 analysts that cover this consumer staples stock, of which 13 analysts have buy recommendations and one analyst (from EVA Dimensions) has a “hold“ recommendation.
The 14 firms that provide research coverage on the company are as follows in alphabetical order: Accountability Research, Barclays, BMO Capital Markets, Canaccord Genuity, CIBC World Markets, Desjardins Securities, EVA Dimensions, GMP Securities, Macquarie, National Bank Financial, Raymond James, RBC Capital Markets, Scotia Capital, and TD Securities.
After the company reported its third-quarter fiscal 2018 financial results in March, most analysts revised their target prices lower. Noted below are several of these revisions.
In March, Peter Sklar, the analyst from BMO Capital Markets, took his target price down to $69 (the low on the Street) from $72. Michael Van Aelst, the analyst from TD Securities, lowered his target price to $79 from $83. Mark Petrie from CIBC Capital Markets reduced his target price by $4 to $73. Irene Nattel from RBC Capital Markets trimmed her target price to $78 from $81. Martin Landry from GMP Securities decreased his target price to $76 from $80. Derek Dley from Canaccord Genuity revised his target price to $73 from $75. Barclay’s Jim Durran cut his target price to $72 from $78. Keith Howlett from Desjardins Securities reduced his target price to $74 from $78. Benjamin Brownlow from Raymond James reduced his target price by $3 to $70. Vishal Shreedhar from National Bank Financial slashed his target price by $6 to $71.
The one outlier was from Scotia Capital’s analyst Patricia Baker who increased her target price to $80 from $76.
Financial Foreca
The consensus earnings per share estimates are US$2.59 in fiscal 2018, rising 17 per cent to US$3.04 in fiscal 2019.
Earnings estimates have declined. For instance, three months ago, the Street was forecasting earnings per share of US$2.99 for fiscal 2018 and US$3.31 for fiscal 2019.
Valuation
The stock appears inexpensive relative to its historical valuation.
According to Bloomberg, the stock is trading at price-to-earnings (P/E) multiple of 14 times the fiscal 2019 consensus estimate. This valuation is below the stock’s historical three-year average P/E multiple of 19 times, and near its trough multiple of 13 times during this time period, implying there may be limited downside risk.
The average 12-month target price is $74, suggesting the stock has 31 per cent upside potential over the next year. Individual target prices provided by 13 firms are as follows in numerical order: $69 (low on the Street is from the analyst at BMO Capital Markets), $70, two at $71, $72, two at $73, $74, two at $76, $78, $79, and $80 (high on the Street is from the analyst at Scotia Capital).
Insider transaction activity
Most recently, on April 12, director Daniel Rabinowicz, purchased a total of 1,573 shares, 736 shares in his personal account and 837 shares for an account in which he has indirect ownership.
Prior to that, on April 3, chief financial officer Claude Tessier bought a total of 1,100 shares in the public market.
Chart watch
For the past three years, the stock price has been trading sideways, predominately between $52 and $65 with the share price currently at the lower end of this trading band. The share price plunged to the bottom of this trading range after the company reported weaker-than-expected third-quarter financial results. Year-to-date, the stock price is down 14 per cent.
Looking at key resistance and support levels, the stock has an initial ceiling of resistance around $57. After that, there is major overhead resistance around $60, close to its 200-day moving average (at $60.32), and then around $65. Looking at the downside, there is strong technical support between $52 and $53.
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.