An oversold dividend stock that may be nearing a bottom

In today’s TSX breakout report, there are only seven stocks on the positive breakout list (stocks with positive price momentum), and 70 stocks on the negative breakout list (stocks with negative price momentum).

Discussed today is a beaten dividend stock that is on the negative breakout list, Jameson Wellness Inc. (JWELL-T). Year-to-date, Jameson’s share price is down 14 percent, making it the worst-performing stock in the S&P/TSX Consumer Staples (Sector) Index. The stock is now deeply in the oversold zone with a Relative Strength Index (RSI) reading of 23. Generally, an RSI reading at 30 or less indicates oversold conditions.

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Historically, dips have represented buying opportunities for this stock. Since mid-2020, the share price has been trading largely between $32 and $40, but recently broke below this trading band after management provided a weaker-than-expected earnings outlook for 2023.

The average one-year target price is $43.17, with a potential total return of 46 percent, including a 2 percent dividend yield.

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A brief outline on Jameson Wellness is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.

company

Toronto-based Jameson Wellness manufactures and distributes natural health products worldwide including vitamins and minerals, supplements, digestive health products, sleep aids and herbal extracts.

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The company’s revenue stems from two business segments, its branded business and the business of its strategic partners. In 2022, the Jameson Brands segment will represent 80 percent of total revenue and 91 percent of adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), with an adjusted EBITDA margin of 25.8 percent. Through the company’s Strategic Partners segment, Jamieson Wellness co-creates products for blue-chip companies. In 2022, this segment will represent 20 percent of total revenue and 7 percent of adjusted EBITDA with an adjusted EBITDA margin of 9.9 percent.

investment thesis

• market leadership. In terms of sales, Jameson is the leading brand in VMS in Canada.
• Increase in revenue and earnings.
• dividend growth. The company has provided double-digit annual dividend growth since 2018.
• Historically low valuations with huge contraction in its multiples.
• Consumer attention to health: Positive health and wellness trends, aging population.
• Major potential risks to consider: 1) earnings projected to decline in 2023; 2) forecast significant margin contraction in 2023 based on management’s guidance; 3) a lack of buyers until the company reports strong quarterly earnings, and 4) consensus earnings estimates remain well above management’s guidance, which could lead to future earnings misses if analysts anticipate proves to be too much.

dividend policy

The company pays its shareholders a quarterly dividend of 17 cents per share, or 68 cents per share on an annualized basis, which equates to a current annual yield of 2.3 percent.

Management is committed to returning capital to its shareholders. Since the stock was publicly listed in mid-2017, the company has announced dividend increases in August of 2018 (13 percent), August of 2019 (11 percent), February of 2020 (10 percent), August of 2020 (10 percent), and August of 2019 (10 percent). 14 per cent), August of 2021 (20 per cent) and August of 2022 (13 per cent).

Management targets a payout ratio of between 40 percent and 50 percent of adjusted net income.

Quarterly Earnings Results and Outlook

After the market closed on February 23, the company reported weaker-than-expected fourth-quarter financial results. However, it was the management’s outlook that dragged the stock down.

Total revenue jumped 48.5 percent year-over-year to $192.8 million, falling short of the Street’s estimate of $202 million. Revenue from the Jameson Brands segment grew 56 percent year over year to $156 million, with organic growth of 5.6 percent. Revenue from the strategic partner segment increased 22.4 percent to $36.8 million. The company reported adjusted EBITDA of $48.9 million, slightly below consensus estimates of $47.9 million and up 44.7 percent year-over-year. Adjusted EBITDA margin was 25.4 percent, down from 26 percent last year. Adjusted earnings per share came in at 62 cents, in line with consensus estimates and up 26.5 percent year-over-year.

On the earnings call, Chief Financial Officer Chris Snowdon highlighted management’s 2023 outlook with forecasts that were below Street expectations, “We are presenting our outlook for fiscal 2023 and anticipate the following: $670 Net revenue in the range of $1 million to $700 million, reflecting annual growth of 22 percent to 28 percent. Adjusted EBITDA in the range of $140 million to $146 million, an increase of 13 percent to 18 percent over the prior year, and adjusted earnings per fully diluted common share between $1.62 and $1.72, an increase of between five cents and 11 Compared to the previous year, St.

The next day, the share price fell nearly 8 percent on high volume with over 700,000 shares traded. Since reporting its financial results and its 2023 outlook, the amount of growth in the stock price has continued to decline.

analyst recommendations

This small-cap consumer staple stock with a market capitalization of $1.25 billion is well covered by analysts on the Street. After the company released its fourth-quarter financial results, seven analysts issued buy recommendations and two analysts (George Dummett of Scotia Capital and John Zamparo of CIBC) issued neutral recommendations.

Firms providing recent research coverage on the company are, in alphabetical order: ARC Independent Research, BMO Nesbit Burns, Canaccord Genuity, CIBC World Markets, National Bank Financial, RBC Dominion Securities, Scotia Capital, Stifel Canada and TD Securities.

revised recommendations

After the company released its fourth-quarter earnings, five analysts lowered their expectations.

• John Zamparo of CIBC Capital Markets downgraded the stock to a “neutral” recommendation from “outperformer” and cut his target price to $37 from $41.
• Canaccord’s Tania Armstrong-Whitworth rose from $45 to $42.
• National Bank’s Andrey Lenotto $44 to $46.25.
• RBC’s Sabahat Khan declined to $41 from $42.
• Scotiabank’s George Dummett rose from $39 to $38.50.

financial forecast

The Street is forecasting revenue of $686 million in 2023, up 25 percent from the reported $547 million in 2022, with revenue expected to reach $732 million in 2024. The consensus EBITDA estimate is $143 million in 2023, up from $123.8-. million in 2022 and is expected to grow to $155 million in 2024. Earnings per share estimates are $1.67 in 2023, up 8 percent from the reported $1.55 in 2022 and expected to rise to $1.94 in 2024.

Earnings expectations have moderated. Four months ago, the Street was forecasting revenue of $696-million in 2023 and $735-million in 2024. Consensus EBITDA forecasts were $152-million for 2023 and $162-million for 2024. The consensus earnings per share was $1.82 for 2023 and $2.05 for 2024.

Evaluation

According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 11.6 times the 2023 consensus estimate, which is near its lowest level in the last five years (the trough multiple reached around 11.1 times in February 2019) ). The stock is trading below its five-year historical average EV/EBITDA of 15.4 times.

The stock is trading at a price-to-earnings multiple of 17.9x 2023 consensus estimates, below its five-year historical average of 26x and approaching its lowest valuations seen in the last five years (hard multiplier was around 17.7 times as of Feb 2019).

The average one-year target price is $43.17, which means the share price has the potential for a 44 percent upside over the next year. Individual target prices are: $37, $38.50, $41, two at $42, two at $44, two at $50 (from Stifel’s Justin Keywood and TD’s Derek Lessard).

chart watch

The stock began trading on the Toronto Stock Exchange in July 2017, which limits technical analysis.

Since mid-2020, the share price has traded largely between $32 and $40, and recently broke below this trading band.

Year-to-date, the share price is down 14 percent, making it the worst-performing stock in the S&P/TSX Consumer Staples (Sector) Index. Given the sharp decline, the stock is now deeply oversold with an RSI (Relative Strength Index) reading of 23. Generally, an RSI reading of 30 or below indicates oversold conditions.

In terms of key technical resistance and support levels, the share price is facing an initial range of resistance around $32.50. After that, there is an overhead resistance between $37 and $38.50. The stock is currently sitting around $30, an area that holds strong technical support. On failure, there is a support near $28.

ESG Risk Rating

According to Sustainlytics, Jamieson Wellness has…