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On today’s TSX Breakouts report, there are just six stocks on the positive breakouts list (stocks with positive price momentum), and 47 stocks are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a stock that is roughly 3 per cent away from appearing on the positive breakouts list - Boyd Group Services Inc. (BYD-T). Quarter-to-date, the share price is up 36 per cent, making BGSI the second-best performing stock in the S&P/TSX Industrials index.

A brief outline on BGSI is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.

The company

Winnipeg-based Boyd operates a network of non-franchised collision repair centers across North America. Its banner include Boyd Autobody & Glass, and Gerber Collision & Glass. Boyd Group also operates auto glass shops across 36 U.S. states under banners such as Glass America, Auto Glass Service, and Auto Glass Authority.

In terms of geographical sales, the majority of Boyd’s revenue is from south of the border with between 8 per cent to 13 per cent of sales from Canada and the remainder from the U.S.

Consequently, BGSI benefits from a higher U.S. dollar. Furthermore, over 90 per cent of its revenue is generated through insurance carriers such as State Farm Insurance, Allstate, and Geico.

Investment thesis

  • Industry leader. A leading North American operator of collision repair shops in terms of sales and number of locations. The company has roughly 860 collision shops across 31 US states and five Canadian provinces. Boyd is also a leading US retail auto glass operator.
  • Consolidator. Acquisition growth is one of management’s key objectives. In 2021, the company acquired 127 collision locations.
  • Record financial results and positive earnings outlook. In the second quarter, the company reported record sales and EBITDA (earnings before interest, taxes, depreciation and amortization).
  • Improving balance sheet. Net debt (before lease liabilities)-to-adjusted EBITDA stood at 2.8 times at quarter-end, down from 3.5 times at the end of 2021.
  • Potential for steady recovery in gross margins.
  • Ability to raise prices for parts.
  • People are returning to work and driving.
  • Reasonable valuation.
  • Key potential risks to consider: 1) shortage of skilled labour; 2) supply chain challenges negatively impacting the availability of car parts; 3) wage inflation and 4) future COVID lockdowns.

Quarterly earnings results and outlook

Before the market opened on Aug. 10, the company reported earnings that exceeded expectations. Sales came in at a record US$612.8-million, up 38 per cent year-over-year and topping the consensus estimate of US$558-million. Same-store sales expanded 22 per cent driven by strong demand and rising prices. The company reported record adjusted EBITDA of US$72-million, up 24 per cent year-over-year and surpassing the consensus estimate of US$58-million. Adjusted net earnings per share came in at 63 US cents, above the Street’s expectations of 28 US cents per share.

The share price rallied nearly 21 per cent that day on high volume with over 270,000 shares traded. To put this in perspective, the three month historical daily average trading volume is roughly 83,000 shares.

On the earnings call, president and chief executive officer Tim O’Day remarked on the company’s growth target, “Boyd remains confident in the business model and the company’s ability to double the size of the business on a constant currency basis from 2021 to 2025 against 2019 sales.”

Boyd will be reporting its third-quarter financial results before the market opens on Nov. 9. That day, management will host an earnings call at 10 a.m. ET. The consensus revenue, EBITDA and earnings per share estimates are US$584-million, US$71.8-million and 67 US cents, respectively.

Dividend policy

Boyd pays its shareholders a quarterly dividend of 14.4 cents per share or 57.6 cents per share yearly, equating to a current annualized yield of 0.3 per cent.

Annualized distributions have increased by 9.1 per cent since 2017.

Financial forecasts

The Street is forecasting EBITDA of US $272-million in 2022, up from U $220-million reported in 2021, and expected to rise to US$355-million in 2023. Earnings per share is anticipated to come in at US$2.17 in 2022, up from US$1.30 reported in 2021, and rise to US$4.31 in 2023.

In recent months, financial forecasts have increased. Four months ago, the consensus EBITDA estimates were US$249-million for 2022 and US$334-million for 2023, and earnings per share expectations were US$1.60 for 2022 and US$3.70 for the following year.

Analysts’ recommendations

Since the release of the second-quarter earnings results in August, 12 analysts have issued research reports on the company. Eight have “buy” recommendations and four have neutral-equivalent recommendations.

The firms providing recent research coverage on BGSI are as follows in alphabetical order: ATB Capital Markets, CIBC World Markets, Cormark Securities, Desjardins Securities, Goldman Sachs, Jefferies, National Bank Financial, Raymond James, RBC Dominion Securities, Scotiabank, Stifel and TD Securities.

Revised recommendations

Since the release of the company’s quarterly earnings results, 12 analysts made revisions to their target prices – all higher.

  • Cormark’s Jeff Fenwick downgraded the stock to a “market perform” recommendation from a “buy” but increased his target price to $200 from $168.
  • National Bank’s Zachary Evershed downgraded his recommendation to “sector perform” from “outperform” but raised his target price by $35 to $205.
  • Stifel’s Maggie MacDougall upgraded her recommendation to a “buy” from a “hold” and increased her target price to $210 from $150.
  • ATB Capital Markets’ Chris Murray to $250 (the high on the Street) from $230.
  • CIBC’s Krista Friesen to $194 from $156.
  • Desjardins’ Gary Ho to $222 from $190.
  • Goldman Sachs’ Kate McShane to $179 (the low on the Street) from $138.
  • Jefferies’ Bret Jordan to $221 from $180.
  • Raymond James’ Steve Hansen to $225 from $195.
  • RBC’s Sabahat Khan to $220 from $205.
  • Scotiabank’s Michael Doumet to $215 from $200.
  • TD’s Daryl Young lifted his target price to $225 from $200.

Valuation

According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 11.6 times the 2023 consensus estimate, below its five-year historical average multiple of 12.5 times.

The average one-year target price is $213.83, suggesting the share price may increase 13 per cent over the next 12 months.

Insider transaction activity

Quarter-to-date, there have been a few relatively small transactions in the public market reported by insiders.

The largest transaction occurred on Aug. 11 when chief operating officer of US Collision Kevin Burnett sold 666 shares at an average price per share of US$149.16 with proceeds totaling just under US$100,000, excluding trading fees.

Chart watch

Year-to-date, the share price is down 5.6 per cent. However, the stock is well off of its 2022 low due to recent strength in share price.

Quarter-to-date, the share price is up 36 per cent, outperforming the S&P/TSX Industrials (sector) index, which has increased 9 per cent. This strong outperformance makes BGSI the second best performing stock in the TSX Industrials index, behind Bombardier Inc. (BBD-B-T), which is up over 66 per cent.

In terms of key resistance and support levels, there is a major ceiling of resistance between $200 and $210. Looking at the downside, there is initial technical support around $180. Failing that, there is support around $170, close to its 50-day moving average (at $170.57).

Liquidity can be low with the three-month historical daily average trading volume at roughly 83,000 shares.

ESG Risk Rating

According to risk provider Sustainalytics, Boyd Group Services has an ESG risk score of 23 as of June 15, 2022. A risk score between 20 and 30 reflects a “medium risk” rating.

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SW-TSierra Wireless Inc $40.81
NEGATIVE BREAKOUTS
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BOS-TAirBoss of America Corp $9.50
ALYA-TAlithya Group Inc. $2.65
APS-TAptose Biosciences Inc $0.89
BDT-TBird Construction Inc $6.30
BRAG-TBragg Gaming Group Inc. $5.60
CAE-TCAE Inc $23.21
CF-TCanaccord Genuity Group Inc $7.42
CJT-TCargojet Inc $127.00
CGO-TCogeco Inc $60.72
DRT-TDIRTT Environmental Solutions Ltd. $0.58
DSV-XDiscovery Silver Corp. $0.94
DIR-UN-TDream Industrial REIT $11.69
DRM-TDREAM Unlimited Corp $25.83
DND-TDye & Durham Ltd. $12.88
ESI-TEnsign Energy Services Inc $2.60
EQB-TEquitable Group Inc $49.17
EXRO-TExro Technologies Inc. $0.82
FAF-TFire & Flower Holdings Corp. $1.97
GDI-TGDI Integrated Facility Services Inc. $44.48
GURU-TGuru Organic Energy Corp. $4.36
HR-UN-TH&R Real Estate Investment Trust $12.26
III-TImperial Metals Corp $2.35
KBL-TK-Bro Linen Inc $29.96
KXS-TKinaxis Inc $136.01
LGO-TLargo Resources Ltd. $7.34
LAS/A-TLassonde Industries Inc $108.00
LB-TLaurentian Bank of Canada $32.83
MAXR-TMaxar Technologies Ltd. $27.53
MKP-TMCAN Mortgage Corp $15.52
MDNA-TMedicenna Therapeutics Corp. $1.14
MTA-XMetalla Royalty & Streaming Limited $4.84
MX-TMethanex Corp $43.79
NUAG-TNew Pacific Metals Corp. $2.87
NWH-UN-TNorthWest Healthcare Properties REIT $11.99
OTEX-TOpen Text Corp $37.91
PLC-TPark Lawn Corp. $25.35
PRN-TProfound Medical Corp. $6.65
RCK-XRock Tech Lithium Inc. $3.22
STC-TSangoma Technologies Corp. $9.40
SVI-TStorageVault Canada Inc. $5.59
SPB-TSuperior Plus Corp $10.72
LEV-TThe Lion Electric Company $4.73
TOI-XTopicus.com Inc. $63.92
WBR-TWaterloo Brewing Ltd. $3.62
WILD-TWildBrain Ltd. $2.20
XBC-TXebec Adsorption Inc. $0.57

Source: Bloomberg and The Globe and Mail

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.

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