On today’s TSX Breakouts report, there are 26 stocks on the positive breakouts list (stocks with positive price momentum), and 21 stocks are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a dividend stock that has defensive attributes, provides reliable income, and has an attractive growth profile – Boralex Inc. (BLX-T).
Utility stocks have been rallying. Over the past month, shares of Boralex have jumped 22 per cent, making it the second-best performing stock in the S&P/TSX composite utilities sector index. It’s year-to-date loss is now almost erased. In 2024, the share price is relatively unchanged, down 0.8 per cent.
Given the swift rebound in the share price, the stock is now in overbought territory. Consequently, the positive price momentum is likely due for a pause to digest the rapid near-term gain.
The stock has nine buy-equivalent recommendations, including a “top pick” recommendation from Desjardins’ Brent Stadler, and two “sector perform” recommendations. The average target price of $38.82 implying a potential price return of 16 per cent over the next 12 months.
A brief outline on Boralex is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
The company
Quebec-based Boralex develops and operates renewable energy power generating facilities in Canada, France, and the United States with the majority of company’s production stemming from wind power. Last quarter, of the 3,099-megawatt installed capacity, 86 per cent was from the wind segment, hydroelectric accounted for 6 per cent of installed capacity, and solar represented 8 per cent. In terms of geographical breakdown, France represented 41 per cent, Canada was at 35 per cent, with the balance, 24 per cent, from the U.S.
Most of this installed capacity, 91 per cent, is covered by long-term, fixed-price contracts with a weighted average contract length of 11 years providing the company with strong earnings visibility.
The Caisse de dépột et placement du Québec is a large institutional shareholder, owning approximately 15 per cent of the shares outstanding. CDPQ typically has a long-term investment horizon.
Quarterly earnings and outlook
Before the market opened on May 15, the company reported better-than-expected first-quarter earnings results.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $218-million, up 14 per cent year-over-year, and ahead of the consensus estimate of $195-million. The company’s balance sheet is healthy with a net debt-to-total market capitalization ratio of 44 per cent as of March 31, 2024.
The share price rallied 7 per cent that day on very high volume with over 1.8 million shares traded, above the three-month historical daily average trading volume of approximately 469,000 shares.
Dividend policy
The company pays its shareholders a quarterly dividend of 16.5 cents per share, or 66 cents per share yearly. This equates to a current annualized dividend yield of 2 per cent.
The company has held its dividend steady since 2018. In 2018, the company announced two dividend increases.
As at March 31, the trailing 12-month payout ratio stood at 35 per cent of discretionary cash flows.
Financial forecasts
The consensus EBITDA estimates are $684-million in 2024, up from $675-million in 2023, and $722-million in 2025.
Earnings forecasts have been rising. Three months ago, the Street was anticipating EBITDA to be approximately $661-million in 2024 and roughly $700-million in 2025.
Analysts’ recommendations
This utility stock with a market capitalization of $3.4-billion is actively covered by 11 analysts, of which nine analysts have buy recommendations and two analysts have neutral recommendations (Nelson Ng, the analyst at RBC Dominion Securities, as well as Peters’ analyst Ken Chmela).
Recent research coverage is provided by the following firms: BMO Nesbitt Burns, CIBC World Markets, Cormark Securities, Desjardins Securities, Morningstar, National Bank Financial, Peters & Co., Raymond James, RBC Dominion Securities, Scotiabank, and TD Cowen.
Revised recommendations
Month-to-date, three analysts have raised their targets
- Mark Jarvi, an analyst at CIBC World Markets, by $1 to $39.
- Ken Chmela, an analyst at Peters & Co. to $34 (the low on the Street) from $33.
- Rupert Merer, an analyst at National Bank Financial, to $41 from $39.
Valuation
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 9.5 times the 2025 consensus estimate, below the 10-year historical average forward multiple of 10.7 times.
Analysts typically value the stock using a discounted cash flow (DCF) analysis. The average one-year target price is $38.82, suggesting the stock price has 16 per cent upside potential over the next 12 months.
Individual target prices are: $34 (from Peters’ Ken Chmela), two at $36, $37, two at $38, $39, two at $41, $42 and $45 (from Cormark’s Nicholas Boychuk) .
Insider transaction activity
Year-to-date, four company executives have been buyers in the public market with relatively small purchases with each individual acquiring between 700 shares and 1,500 shares.
Chart watch
The share price has rebounded sharply in recent weeks.
Over the past month, the utilities sector has been the best performer of the 11 sectors in the S&P/TSX Composite Index gaining 7.8 per cent, compared to a 1.8 per cent return for the broader index. Of the 15 members in the S&P/TSX Utilities Index, Boralex is the second-best performer with a gain of 22 per cent. All 15 stocks in the sector have positive price returns over the past month.
Given the sharp rebound in Boralex’s share price, the stock is now in overbought territory. The relative strength index, RSI, is high at 80. Generally, an RSI reading at or above 70 reflects an overbought condition.
While the one-month return appears impressive, the year-to-date return is more subdued. In 2024, shares of Boralex are relatively unchanged, down 0.8 per cent.
Looking at key technical resistance and support levels, the stock is approaching initial overhead resistance around $35. After that, there is resistance around $40. Looking at the downside, the stock has technical support around $30, near its 50-day moving average at $28.82.
ESG Risk Rating
According to risk provider Sustainalytics, Boralex has an environmental, social and governance (ESG) risk score of 21.5 as of Jan. 14, 2023. A risk score of between 20 and 30 reflects a “medium 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,.