Cantor Fitzgerald's Liston raises target on Constellation, maintains HOLD

Cantor Fitzgerald analyst Tom Liston says Constellation Software’s recently reported Q3 beat his expectations, across the board. Last Wednesday, Constellation Software (TSX:CSU) reported its Q3, 2012 financials. The company earned $21.1 million or $0.99 per share on revenue of $226 million, which was up 12% from the same period a year prior.

Cantor Fitzgerald analyst Tom Liston says the quarter beat his expectations, across the board. He had anticipated a strong report because of the seven acquisitions the company completed within the period, but CSU’s solid performance has caused him to revise his target price, if only slightly. In a research update to clients this morning, Liston maintained his hold on Constellation, but raised his target on the company to $120 from his previous target of $115. He arrived at this number by raising fiscal 2013 earnings multiple to 15x, up from 14x.

Toronto-based Constellation was formed by current CEO Mark Leonard, who left the world of venture capital in 1995 to form the company, which has since become one of the most profitable and successful Canadian companies. Constellation, which makes software for the public and private sector, is clear about its strategy. The company grows through acquisition, looking to acquire best of breed companies across different verticals. Constellation is involved in various niches on the public and private side from software for housing authorities, transportation agencies, and software for large home builders. On the strength of this strategy, the company has grown its revenue from just $243 million in fiscal 2007 to more than $773-million in 2011.

Liston notes that Constellation’s core revenue segment, maintenance revenue, continued its healthy growth, up 19% year over year. This was offset somewhat, he says, by a 20% reduction in low margin hardware, but the Cantor analyst says this is not a concern to him.