On today’s TSX Breakouts report, there are 17 stocks on the positive breakouts list (stocks with positive price momentum), and 30 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a stock that appears on the positive breakouts list. In recent weeks, the share price has been rallying while the S&P/TSX Composite Index has been faltering. The share price has increased 38 per cent in the past two weeks. The stock has a unanimous buy recommendation with a 33-per-cent gain expected over the next 12 months. The security I am referring to is Tervita Corp. (TEV-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Alberta-based Tervita is an environmental services provider.
On July 19, Tervita Corp. merged with Newalta Corp. to form a leading energy-focused waste and industrial services company. Tervita has two core business segments: Energy Services and Industrial Services. The Energy Services division accounts for the majority of the company’s earnings.
After the market closed on Nov. 14, the company reported better-than-expected third quarter financial results that sent the share price soaring 8 per cent the next trading day.
In the earnings release, president and chief executive officer John Cooper reflected on the company’s solid quarter, Tervita’s first quarter as a combined company, remarking, “Our combined operations delivered strong performance with adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] increasing 69 per cent year-over-year to $71-million, with an adjusted EBITDA margin of 35 per cent. These results reflect our recent merger with Newalta and contributions from our growth and expansion investments in key regions. The integration is progressing well and synergies are on track with the combination of the two companies delivering exactly the kind of incremental benefits we had envisioned. We expect annualized run rate synergies of $20 to $22 million by the end of 2018, and to deliver $40 to $45 million of annualized synergies by August 2020.”
He also said the headwinds faced by companies operating in the energy sector, stating, “Although the overall industry outlook is somewhat tempered due to current challenges facing the Canadian oil and gas sector, our expanded network is well positioned to provide our customers with opportunities to obtain the best available price for their products. We expect to finish the year with continued positive momentum. With a strong balance sheet underpinned by more stable production-related revenue, we remain well positioned to deliver double-digit growth and to capitalize on emerging market catalysts as they arise.”
The CEO provided additional insights on the earnings call with respect to the industry challenges, “Our Energy Services revenues are significantly underpinned by ongoing production, and production out of the Western Canadian Sedimentary Basin is expected to increase 300,000 barrels of oil equivalent per day in 2018 and a further 200,000 barrels of oil equivalent in 2019. We expect this to provide stability to our performance, and it's the main reason for the strong volume and the results we continue to see from our Heavy Oil facilities. The widening differentials tied to the lack of pipeline takeaway capacity is expected to persist into 2019. While we remain disappointed with the lack of progress on building these pipeline, this supports our ability to attract and optimize crude oil volumes through our network of facilities and continue to assist our customers to maximize the price they receive for the products in a very difficult environment. Industry expectations are for drilling in 2019 to remain relatively flat with the year-to-date 2018 activity.”
Dividend policy
Management is focused on growth and currently does not pay its shareholders a dividend.
Analysts’ recommendations
This small-cap stock, with a market capitalization of $1.1-billion, is well covered by the Street. There are seven analysts covering the stock, of which all seven analysts have buy recommendations.
The firms providing research coverage on the company are as follows in alphabetical order: Canaccord Genuity, CIBC Capital Markets, GMP Securities, Industrial Alliance Securities, National Bank Financial, Peters & Co. and TD Securities.
Revised recommendations
This month, four analysts have increased their outlooks for the stock. Jeff Fetterly, the analyst from Peters & Co., tweaked his target price higher to $13.50 from $13. Elias Foscolos, the analyst from Industrial Alliance Securities, increased his target price to $13.50 from $11. Ian Gillies from GMP Securities lifted his target price to $13 from $12.50. John Bereznicki from Canaccord Genuity raised his target price by $1 to $13.50.
Financial forecasts
According to Thomson Reuters, the consensus EBITDA estimates are $200-million in 2018, rising to $266-million in 2019. The consensus earnings per share estimates are 19 cents for 2018 and 56 cents for 2019.
Valuation
According to Thomson Reuters, the stock is trading at an enterprise value-to-EBITDA multiple of 6.6 times the forward 12-month consensus estimate.
The average one-year target price is $12.98, implying the stock price may have 33 per cent upside potential over the next 12 months.
Insider transaction activities
Quarter-to-date, there has not been any trading activity reported by insiders. The most recent trades reported by insiders occurred in Sept.
On Sept. 5, chair Grant Billing purchased 4,400 shares at a price per share of $9.13. The prior day, he acquired 4,900 shares at a cost per share of $9.12. These two transactions increased his portfolio’s holdings to 30,000 shares.
On Sept. 5, Mr. Cooper bought a total of 2,183 shares for an account in which he has control or direction over, raising the account’s holdings to 2,183 shares.
Chart watch
The share price of this energy services stock has rallied 38 per cent over the past two weeks, sharply outperforming the market, which has been in a downtrend.
The stock has a brief trading history, making technical analysis of limited value. That being said, the share price is approaching a major ceiling of resistance around $10.50, near its record closing high of $10.44 reached on July 25. There is initial downside support around $9. Failing that, there is technical support around $8.50, which is close to its 50-day moving average (at $8.33).
This small-cap stock can be thinly traded. The three-month historical daily average trading volume is approximately 208,000 shares.
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 indices 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.