On today’s Breakouts report, there are 56 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). Energy and gold stocks dominate the positive breakouts list.
Featured today is a dividend stock that may be on the verge of breaking out to the upside – Mullen Group Limited . From a technical analysis perspective, the 50-day moving average is on the cusp of crossing above the 200-day moving average – a bullish technical signal referred to as a Golden Cross.
The next potential catalyst for the stock is the company’s release of its first-quarter earnings results on April 20. Year-to-date, the share price is up 13 per cent - a top performer in the S&P/TSX Industrials sector. The average 12-month target price suggests the stock price has an additional 19-per-cent upside potential. In addition to potential price appreciation, the stock offers investors an attractive yield of 4.6 per cent.
The company has been active in its share buyback program, providing a degree of downside support for the share price.
A brief outline on Mullen Group is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
The company
Alberta-based Mullen Group has four core reporting segments: 1) Less-Than-Truckload (LTL), which represented 39.5 per cent of total revenue in 2021; 2) Logistics and Warehousing (31.4 per cent); 3) Specialized & Industrial Services that provides services to the energy sector (21.1 per cent); and 4) U.S. & International Logistics (8 per cent).
MULLEN GROUP LTD
13.17+0.59 (4.69%)
PAST YEAR
Investment thesis
- Strong leadership with Murray Mullen at the helm.
- Industry leader. Mullen Group is one of the nation’s largest logistics providers.
- Positive industry conditions. Strong demand for goods, which is increasing freight transportation volumes and reducing trucking availability. This provides Mullen Group with pricing power.
- Near-term objectives: Integration and realizing synergies from the six acquisitions completed in 2021, cost management, acquisition opportunities, and expansion in the U.S. market.
- High oil and natural gas pricing supports drilling activity, which benefits the company’s Specialized & Industrial Services segment.
- Solid balance sheet. Leverage ratio of approximately 2.5 times as at Dec. 31.
- Attractive dividend yield. Generates strong free cash flow.
- Repurchasing shares. Providing some downside support.
- Valuation: Room for multiple expansion.
- Potential risks to consider: 1) Rising costs including diesel fuel, wages, maintenance, tires, and parts; and 2) shortage of skilled labour (truck drivers).
Quarterly earnings results
After the market closed on Feb. 9, the company reported a relatively in-line quarter. The company delivered record revenue of $442-million, ahead of the Street’s forecast of $430-million. Adjusted earnings before, interest, depreciation and amortization (EBITDA) was $60.6-million, in-line with the consensus estimate of $60.8-million.
On the earnings call, chairman, president and chief executive officer Murray Mullen summarized the company’s 2022 earnings potential saying, “We’re going to achieve record revenues. This is going to be driven by the full-year results from the six acquisitions we completed in ‘21…In addition, I fully expect we’re going to complete additional acquisitions during ‘22, which will drive additional revenue growth. So, we’re going to have record revenues in ‘22. We have a balance sheet that has over CAD $150 million of available credit available. And then, truthfully, when you think about the tightness in the labor market, acquiring good companies with great teams may be the best way that anybody can grow at additional capacity to service their existing customers… And I can tell you we’re going to focus on raising prices because that’s the step change that we fundamentally see happening in the Canadian marketplace. It’s going to happen throughout ‘22.”
After the market closes on April 20, the company will be releasing its first-quarter 2022 earnings results. The consensus revenue, and EBITDA estimates are $422-million and $59-million, respectively. Management will be hosting an earnings call on April 21 at 11 a.m. (ET).
Returning capital to its shareholders
The company pays its shareholders a monthly dividend of 5 cents per share, or 60 cents per share yearly, equating to a current annualized yield of 4.6 per cent.
On Dec. 8, the company announced a 25-per-cent dividend hike, raising its monthly dividend to 5 cents per share from 4 cents per share.
In 2021, 3,469,869 shares were repurchased as part of the company’s share buyback program at an average price per share of $12.78.
On the earnings call, Mr. Mullen, when asked about how management prioritizes its use of free cash flow with respect to debt repayment, dividend increases and share repurchases, said: “We already increased the dividend for this year, really comfortable with that. And I can tell you right now, we’re really, really comfortable in buying this really cheap company. It’s called MTL.”
Analysts’ recommendations
This small-cap stock with a market capitalization of $1.2-billion is covered by 11 analysts, of which eight analysts have buy recommendations and three analysts have neutral recommendations.
The firms providing research coverage on the company are as follows in alphabetical order: BMO Nesbitt Burns, CIBC World Markets, Cormark Securities, iA Capital Markets, ISS-EVA, National Bank Financial, Peters & Co., Raymond James, RBC Dominion Securities, Scotia Capital and TD Securities.
Revised recommendations
Target prices and recommendations have remained relatively stable in recent months.
Last month, only one analyst revised his expectations. IA Capital Markets’ Matthew Weekes bumped his target price to $16.50 from $16.
Financial forecasts
The Street anticipates Mullen Group will report revenue of $1.7-billion in 2022, up from $1.48-billion reported in 2021, rising to $1.81-billion in 2023. The consensus EBITDA estimates are $262-million in 2022, up from $236-million reported in 2021, and $275-million in 2023. The consensus earnings per share estimates are 84 cents in 2022, up from 73 cents realized in 2021, and forecast to rise to 95 cents in 2023.
Earnings forecast have been holding steady. Three months ago, the Street was forecasting EBITDA of $263-million in 2022 and $277-million in 2023. The consensus earnings per share estimates were 82 cents in 2022 and 94 cents in 2023.
Valuation
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 7.2 times the 2023 consensus estimate, below its five-year historical average of 7.7 times.
The average 12-month target price is $15.65, implying the share price has 19 per cent upside potential over the next year. Individual target prices provided by 10 analysts are: $13.50 (from CIBC’s Kevin Chiang), $14, $14.50, $15.50, two at $16, two at $16.50, and two at $17 (from TD’s Aaron MacNeil and Cormark’s David Ocampo).
Insider transaction activity
Year-to-date, only two insiders have reported trading activity in the public market and each individual reported a relatively small transaction.
On March 30, senior vice-president Richard Maloney purchased 1,000 shares at a price per share of $13.38, increasing this particular account’s position (RRSP) to 24,540 shares.
On March 2, Philip Scherman, who sits on the board of directors, acquired 3,600 shares at a price per share of $12.815, raising this specific account’s holdings (RRSP) to 11,800 shares.
Chart watch
The chart is attractive.
Year-to-date, the share price is up 13 per cent, outperforming the S&P/TSX Composite Index and S&P/TSX Industrials Sector, each with gains of 3.4 per cent and 0.5 per cent, respectively. Mullen Group is the fourth best performing stock in the S&P/TSX Industrials Sector Index, behind Westshore Terminals Investment Corp., Finning International Inc. , and Air Canada with price returns of 24 per cent, 16 per cent and 15 per cent, respectively.
The stock is on the cusp of forming a Golden Cross – a bullish technical pattern that occurs when a shorter-term moving average (the 50-day moving average in this case) cross above a longer-term moving average (the 200-day moving average). Right now, the 50-day moving average (at $12.38) is just below the 200-day moving average (at $12.65).
Also positive, the stock has a bullish cup and handle pattern, which precedes a positive breakout in the share price. On a breakout, the stock price has initial overhead resistance around $15.
ESG Risk Rating
According to Sustainalytics, Mullen Group has an ESG risk rating of 19. A rating of between 10 and 20 reflects a low risk. This rating is as of Nov. 21, 2021.
On the fourth-quarter earnings call, chief financial officer Stephen Clark said, “I’d like to maybe just address our carbon intensity. So, we’ve made these acquisitions, APPS being one of them, an intermodal player, and we have intermodal freight moving at Kleysen and others and Tri Point. This has really resulted in our carbon intensity being down to about 20 grams per dollar of revenue from about 23 grams per dollar of revenue in 2020. So again, we are managing everything well, profitability, and keeping an eye on ESG and reducing our carbon footprint, our carbon intensity yet again in 2021.”