On today’s TSX Breakouts report, there are 43 stocks on the positive breakouts list (stocks with positive price momentum), and seven securities are on the negative breakouts list (stocks with negative price momentum).
With the price of oil surging higher, the energy sector (the lowest performing sector in the S&P/TSX composite index year-to-date) should get a lift and this top performing energy stock may see its share price rise as energy stocks go along for the ride. The share price is approximately 4 per cent away from its record closing high. Consequently, the stock may soon reappear on the positive breakouts list. This mid-cap stock has a current yield of 2.7 per cent and 11 buy recommendations.
The security highlighted today is Parkland Fuel Corp. (PKI-T).
A brief outline is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
The company
Red Deer, Alta.-based Parkland Fuel Corporation is a marketer of fuel and petroleum products such as gasoline, diesel, propane, and heating oil to residential and business customers. The company is also a leading convenience stores operator with a mix of company owned and dealer owned stores under banners that include On the Run and Marché Express. Parkland supplies over 1,850 gas stations across Canada including Esso, Chevron, Ultramar and Pioneer.
The company has five core operating segments: supply, international, Canada retail, Canada commercial, and USA. In the second quarter, EBITDA (earnings before interest, taxes, depreciation and amortization) was generated principally from three of its five key segments: supply represented the largest segment (representing over half of the company’s total adjusted EBITDA), followed by international, and then Canada retail.
After the market closed on Aug. 1, the company reported better-than-expected second-quarter financial results, which lifted the share price 0.7 per cent the following trading day. Parkland reported record second-quarter adjusted EBITDA of $346-million, beating the consensus estimate of $314-million.
The supply division was a key driver with EBITDA of $216-million, up 27 per cent year-over-year, benefiting from higher refining crack spreads due to refinery outages in the U.S. (California and the Pacific Northwest). Furthermore, its Burnaby refinery’s utilization reached almost 95 per cent. Given the strong financial results, management raised its outlook for the year and now anticipates 2019 adjusted EBITDA will come in at approximately $1,165-million (within 5 per cent of this target), up from its previous guidance of $1,065-million.
Management’s core objective is growth – both organic and acquisition. Management targets organic growth of between three and five per cent.
On Sept. 5, the company announced its plans to acquire Tropic Oil Company Inc., establishing a beachhead in the Florida market. This purchase is anticipated to deliver annual run adjusted EBITDA of roughly $60-million to its USA operating segment.
On the earnings call, president and chief executive officer Bob Espey remarked on its expected synergies to be realized from its past acquisitions, “We continue to track well against our $180-million target for synergies [by the end of 2020] with the CST and Chevron acquisitions. We’ve made great progress through the second quarter and are now running at $140 million.”
Dividend policy
Management is committed to its dividend policy. The company has announced annual dividend increases in March of every year since 2013. The company pays its shareholders a monthly dividend of 9.95 cents per share, or $1.194 per share on a yearly basis. This equates to an annualized dividend yield of 2.7 per cent.
During the first half of 2019, the dividend payout ratio was 30 per cent (based on adjusted distributable cash flow), suggesting there is room for its annual dividend increases to continue.
Analysts’ recommendations
This mid-cap stock with a market capitalization of over $6-billion is actively covered by 13 analysts on the Street, of which 11 analysts have buy recommendations and two analysts have neutral calls. Since the start of the year, five analysts have initiated coverage on the company increasing the stock’s visibility to investors.
The firms providing recent research coverage on the company are as follows in alphabetical order: AltaCorp Capital, BMO Nesbitt Burns, Canaccord Genuity, CIBC World Markets, Desjardins Securities, Industrial Alliance Securities, J.P. Morgan, National Bank Financial, Peters & Co., Raymond James, RBC Dominion Securities, Scotiabank, and TD Securities.
Revised recommendations
Earlier this month, Scotiabank analyst Benoit Laprade tweaked his target price higher by 50 cents to $43.50.
In Aug., three analysts revised their target price – all higher. Tyler Reardon, an analyst at Peters & Co., raised his target price by $2 to $52. National Bank’s Vishal Shreedhar lifted his target price by $1 to $51. J.P. Morgan’s John Royall increased his target price to $54 from $49.
Financial forecasts
The Street is forecasting EBITDA of $1.208-billion in 2019, up from $887-million reported in 2018, and anticipated to rise over 12 per cent to $1.156-billion in 2020.
In recent months, earnings expectations have been revised slightly higher. For instance, three months ago, the consensus EBITDA estimates were $1.142-billion for 2019 and $1.126-billion for 2020.
Valuation
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 8.9 times the 2020 consensus estimate, in-line with its three-year historical average.
The average 12-month target price is $49.83, suggesting the share price has over 13 per cent upside potential over the next year. Individual target prices are as follows in numerical order: $44.50 (the low on the Street is from Benoit Laprade, the analyst at Scotiabank), $44, three at $49, $49.50, two at $50, $51, $52, two at $54 and $57 (the high on the Street is from Derek Dley, an analyst at Canaccord Genuity).
Insider transaction activity
Year-to-date, five insiders have completed trades in the public market.
On Aug. 16, Peter Kilty, senior vice-president – Canadian retail operations, exercised his options, receiving 17,394 shares at a cost per share of $13.7986 and sold 17,394 shares at a price per share of $42.7611, leaving 32,252 shares in his account. Net proceeds, excluding trading fees, totaled over $503,000.
On June 26, Darren Smart, senior vice-president – strategy and corporate development, sold 11,600 shares at a price per share of $41.25, with 4,586 shares remaining in his account.
On June 17, president and chief executive officer Bob Espey exercised his options, receiving 101,460 shares, and sold 16,340 shares at a price per share of $41.8217, leaving 452,737 shares in his portfolio.
On June 13, Patricia van de Sande, vice-president – finance, sold 3,700 shares at a price per share of $42.39 with a remaining account balance of 1,838 shares.
On March 7, director Deborah Stein acquired 510 shares in the public market at a price per share of $37.25.
Chart watch
Year-to-date, the share price has rallied 24 per cent making it the eighth best performing stock out of 40 members in the S&P/TSX composite energy index. The share price is roughly 4 per cent away from taking out is all-time closing high, which was reached back in Oct. 2018 - before the S&P/TSX composite index collapsed.
Looking at key resistance and support levels, the stock is has a major ceiling of resistance around $45, near its record closing high reached in Oct. 2018. After that, there is overhead resistance around $50. Looking at the downside, there is strong technical support around $40, close to its 200-day moving average (at $39.48).
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.
Jennifer Dowty