On today’s Breakouts report, there are 20 stocks on the positive breakouts list (stocks with positive price momentum), and 33 stocks are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a stock that is nearing a record high and may soon resurface on the positive breakouts list - Element Fleet Management Corp. (EFN-T). As of the close on Monday, the share price was a penny away from closing at a new record high.
A brief outline on Element is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
The company
Toronto-based Element Fleet Management is a leading fleet management company with operations in North America, Mexico, Australia and New Zealand.
The company has a diversified client base serving blue-chip customers across different industries and geographies including Amazon.
Investment thesis highlights
- Industry leadership. Element is a leading pure-play commercial vehicle fleet management company.
- High barriers to entry.
- Management team with a proven track record. Successfully executing on its stated objectives.
- Strong customer base. 98 per cent client revenue retention.
- Growth. Management targets achieving net revenue growth of between 6 per cent and 8 per cent in 2024. Management has guided to basis earnings per share growth of between 7 per cent and 11 per cent in 2024 (eps of between US$1.05 and US$1.09).
- Double-digit return on equity (ROE). Reported ROE of 12.5 per cent in 2023.
Quarterly earnings and outlook
After the markets closed on May 14, the company reported better-than-expected first-quarter financial results. Adjusted basic earnings per share came in at 27 US cents, above the Street’s forecast of 24 US cents per share. Adjusted free cash flow per share was 35 US cents, up from 28 US cent reported last year. Originations (excluding Armada), reflecting future revenues, totaled US$1.5-million, up 9.8 per cent year-over-year. The share price advanced 7 per cent the following day on high volume with over 2.4 million shares traded, well above the three-month historical daily average trading volume of approximately 1.3 million shares.
Dividend policy
The company pays its shareholders a quarterly dividend of 12 cents per share or 48 cents per share yearly, equating to a current annualized yield of 1.9 per cent.
Management targets an annual payout ratio of between 25 per cent and 35 per cent of its trailing 12 months’ adjusted free cash flow per share.
Analysts’ recommendations
The stock is actively covered by nine analysts, of which eight analysts have buy recommendations and one analyst (Shalabh Garg from Veritas Investment Research) has a ‘reduce’ recommendation.
The firms providing recent analyst coverage on the company are: BMO Nesbitt Burns, CIBC World Markets, Jefferies, National Bank Financial, Raymond James, RBC Dominion Securities, Scotiabank, TD Cowen, and Veritas Investment Research.
Revised recommendations
In May, six analysts raised their expectations.
- BMO’s Tom MacKinnon to $28 from $26.
- Jefferies’ John Aiken to $28 from $27.
- National Bank Financial’s Jaeme Gloyn to $33 (the high on the Street) from $31.
- Scotiabank’s Phil Hardie to $27 from $26.
- CIBC’s Paul Holden to $26 from $25.
- TD’s Graham Rydingto $28 from $27.
Financial forecasts
For 2024, management has guided to:
- Net revenues of between US$1.02-billion and US$1.04-billion (up 6 to 8 per cent year-over-year).
- Adjusted basic earnings per share of between US$1.05 and US$1.09 (up 7 to 11 per cent).
- Adjusted free cash flow per share of between US$1.31 and US$1.34 (up 6 to 8 per cent).
- Originations, excluding Armada, of between US$7-billion and US$7.4-billion (up 11 to 17 per cent).
Valuation
The stock is not cheap, trading above its historical average multiple.
The stock is trading at a price-to-earnings multiple of approximately 16.8 times management’s mid-point earnings estimate for 2024. To put this in context, according to Bloomberg, the five-year historical average forward multiple is roughly 14.7 times and its peak multiple during this time period is just over 18 times.
The average one-year target price is $28.22, implying the share price has 14 per cent upside potential over the next 12 months. Expectations are concentrated in the mid to high-$20′s. Individual target prices are: $24 (from Veritas’ Shalabh Garg), $26, $27, three at $28, $29, $31, and $33 (from National Bank’s Jaeme Gloyn).
Insider transaction activities
On May 29, executive vice-president and chief commercial officer David Madrigal bought 1,750 shares at an average price per share of approximately $17.52. The cost this purchase totaled more than $30,000.
On May 24, executive vice-president and chief operating officer Jim Halliday purchased 800 shares at a cost per share of $24.35 (Canadian). The cost of this investment exceeded $19,000. Prior to that, on May 17, Mr. Halliday exercised his options, receiving 67,101 shares at a cost per share of $5.73, and sold 67,101 shares at a price per share of $24.05. Net proceeds totaled over $1.2-million, not including any associated transaction fees.
On May 21, director Keith Graham sold 25,000 shares at a price per share of $24.70. Proceeds from the sale totaled over $617,000, excluding trading fees.
Chart watch
As of the close on Monday, the stock was a penny away from closing at a new record high.
Year-to-date, the share price has rallied nearly 15 per cent, outperforming the S&P/TSX composite index, which is up 5.5 per cent.
The stock is nearing overbought territory with an RSI, relative strength index, reading of 66. Generally, an RSI reading at or above 70 reflects an overbought condition.
In terms of key technical resistance and support levels, the share price faces an initial ceiling of resistance around $25. After that, there is overhead resistance between $28 and $30. Looking at the downside, there is initial technical support around $23, near its 50-day moving average (at $22.56). Failing that, there is support around $21.50, close to its 200-day moving average (at $21.52), and major support around $20.
ESG Risk Rating
According to risk provider Sustainalytics, Element has an environmental, social and governance (ESG) risk score of 15.4 as of May 23, 2024. A risk score of between 10 and 20 reflects a “low risk” rating.
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.
This report should not be considered an investment recommendation