What are we looking for?
Following last week’s announcement by the Bank of Canada to cut their overnight lending rate, the loonie fell to its lowest level since 2009. A weak dollar makes importing goods and vacations to the United States more expensive, yet some companies benefit. The firms that gain the most advantage source a large portion of their revenue in U.S. dollars and operating expenses in Canadian dollars. I am looking for Canadian-listed firms outside of the energy sector that derive at least half their revenues from the United States.
The screen
To pass my screen, the companies need positive earnings per share in the past year and average revenue growth over the past three years of 10 per cent. As a measure of the firms’ core operating profitability I used an EBITDA (earnings before interest, taxes, depreciation and amortization) margin with a value of at least 5 per cent. A higher EBITDA margin means that operating expenses are a smaller portion of a firm’s total revenue, resulting in higher profits.
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What did we find?
Out of the nearly 250 companies in Canada that derive more than half of their revenues in the United States, I found 15 companies using Thomson Reuters Eikon that fit my screening criteria.
New Flyer Industries, a manufacturer of heavy-duty transit buses, generates 84 per cent of its revenue from south of the border. NFI’s strong backlog of firm orders is expected to carry them for four years, fuelled by increasing demand for their clean propulsion and electric zero-emissions buses. The company has an attractive growth and income component with strong revenue growth paired with a 4.2-per-cent dividend.
Stella-Jones Inc. is a producer and marketer of pressure-treated wood products. The company supplies utility poles and ties for railways and earns more than 80 per cent of its revenue stateside. In the first quarter, SJ benefited from a strong U.S. currency conversion effect that increased the value of their U.S. sales by about $30-million, which was nearly 10 per cent of their total sales. Net margins are more than twice their competitors and growing, and shares of the company are up more than 50 per cent in the past year.
Investors are advised to do their own research before investing.
Charles Martin, CFA, works in the financial and risk unit ofThomson Reutersand specializes in asset management.