This morning, the price of oil jumps 4 per cent to over $53 (U.S.) a barrel and the Canadian dollar tops 76 cents relative to the U.S. dollar. In November, the Organization of Petroleum Exporting Countries (OPEC) agreed to cut production, and over this past weekend, non-OPEC countries followed suit, sending the price of oil soaring.
In terms of news releases, it is a quiet day with no companies in the S&P/SX composite index reporting quarterly financial results, nor are there any major economic releases due out today.
Briefly recapping Friday's stock market performance, major North American equity markets continued to march higher.
In the U.S., the Dow Jones Industrial Average, S&P 500 Index, and Nasdaq composite closed up 0.72 per cent, up 0.59 per cent, and up 0.50 per cent, respectively.
In Canada, the S&P/TSX composite index gained 17 points, or 0.11 per cent. There were 133 securities in the TSX Index that advanced, 106 securities declined in value, and eight stocks closed the day unchanged. Leadership was spread across numerous sectors with nine of the 11 sectors in the Index closing in positive territory, led by strength in the consumer staples and financials sectors.
The TSX Index is up 1.52 per cent month-to-date, up 3.98 per cent quarter-to-date, and has a year-to-date gain of 17.70 per cent.
On today's TSX Breakouts report, there are 72 stocks on the positive breakouts list (stocks with positive price momentum), and 22 securities on the negative breakouts list (stocks with negative price momentum).
Highlighted today is stock that has been trading sideways for several months, and as a result, has failed to appear on either the positive or negative breakouts lists – Student Transportation Inc. (STB-T). While price momentum may have stalled for the time being, the stock may be appealing to investors seeking income given its 7.4 per cent dividend yield.
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Student Transportation is a North American provider of school bus transportation with more than 13,500 vehicles.
On Nov. 8, the company reported its first quarter fiscal 2017 financial results. Revenue was $102.2-million, up from $93.4-million last year. The company reported positive adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the first time in the first quarter. The first quarter is historically the weakest quarter of the year for the company given that it reflects the school holiday period (July and August). Its fiscal year end is June 30.
Fuel costs are something to be aware of. As indicated in the company's recent Management's Discussion and Analysis (found on the website sedar.com), "In connection with the fuel exposure under the school district contracts, approximately 60 per cent of such contracts include some form of fuel mitigation in connection with market fuel price increases, with approximately half of that reflecting the outright purchase of fuel by school district customers… In August and November 2015 the Company locked in approximately 15 per cent of fuel exposure for the 2017 fiscal year. In July 2016, the Company locked in one third of the approximate 20 per cent of its fuel exposure for the 2018 fiscal year."
Dividend policy
The company pays its shareholders a monthly dividend of 3.667 cents (U.S.) per share, or 44 cents per share on a yearly basis. This equates to an annualized dividend yield of 7.4 per cent.
In 2015, the company converted its dividend to U.S. dollars from Canadian dollars, aligning its dividend with its revenues and cash flows, which are denominated primarily in U.S. dollars.
Valuation
Analysts commonly value the stock on an enterprise value-to-EBITDA basis. According to Bloomberg, the stock is trading at an EV/EBITDA multiple of 9.4 times the fiscal 2018 consensus estimate. This is just above its five-year historical average of 8.8 times.
The average one-year target price is $8.45 (Cdn), implying the share price may appreciate more than 8 per cent over the next 12 months. Target prices range from a low of $7.75 to a high of $10.09. Individual price targets in numerical order are as follows: two at $7.75, $7.94, $8.50, $8.66, and $10.09.
Analysts' recommendations
This small-cap industrial stock, with a market capitalization of $717-million (Cdn.) is covered by several large firms on the Street. In 2016, six analysts issued research reports, four analysts have 'buy' recommendations and two analysts have 'hold' recommendations. The six firms providing research coverage in alphabetical order are as follows: Barrington Research, BMO Capital Markets, National Bank Financial, Raymond James, Scotia Capital, and Stifel.
The Street is forecasting revenue of $644-million (U.S.) in fiscal 2017, climbing 6 per cent to $682-million the following year. The consensus EBITDA estimate is $85.6-million in fiscal 2017, rising over 6 per cent to $91.3-million in fiscal 2018. The consensus cash flow per share estimates are 74 cents in fiscal 2017 and 72 cents in fiscal 2018.
Consensus estimates have declined slightly since the start of the year. On January 1, the consensus EBITDA forecasts were $90-million for fiscal 2017 and $95-million for fiscal 2018.
Chart watch
Year to date, the share price is up 52 per cent, and been trending sideways over the past several months, digesting its gains.
The stock price has initial overhead resistance around $8, and after that around $9.
There is downside support around $7, which is near its 200-day moving average (at $6.99).
===
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, and provides a brief technical analysis for a security to provide readers with more information. This is not a stock recommendation.
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.