Pivot Technology has 287% upside, says Echelon Wealth Partners

Echelon Wealth Partners analyst Ralph Garcea says Pivot Technology Solutions’ (Pivot Technology Solution Stock Quote, Chart, News: TSX:PTG) fourth quarter results are the latest evidence that the stock is undervalued.

Yesterday, Pivot reported its fourth quarter and fiscal 2016 results. In the fourth quarter, the company posted Adjusted EBITDA of $8.5-million on revenue of $398.9-million, a topline that was up 2.4 per cent from the $389.4-million the company posted in the same period a year prior.

“Our objective is to drive profitable growth by providing an expanded suite of value-added solutions to our customer base,” said CEO Kevin Shank. “Actions to improve effectiveness are gaining traction, more are planned, and while Pivot incurred some related one-time costs in 2016 in advance of payback, we expect cost-savings benefits to commence in the third quarter.”

Garcea notes that Pivot’s Q4 results were slightly better than his expectations on both the top and bottom line. He says the company is being driven, in part, by secular tailwinds.

“The secular trends play to Pivot’s strengths: (1) higher IT spending; (2) greater IT complexity and innovation requires specialized expertise; (3) increased IT pressure for “always on” as platforms move to the cloud and provide more opportunity for Pivot’s lifecycle support; and (4) broader IT supply chain rationalization is driving the need for scale,” he says.

In a research update to clients today, Garcea maintained his “Buy” rating and one-year price target of $5.50 on Pivot Technology Solutions, implying a return of 287 per cent at the time of publication.

Garcea thinks Pivot will post Adjusted EBITDA of $31-million on revenue of $1.52-billion in fiscal 2017. He expects these numbers will improve to EBITDA of $45-million on a topline of $1.60-billion the following year.