It’s been a great run for shareholders of Constellation Software. Cantor Fitzgerald’s Tom Liston thinks it will continue. Constellation Software (TSX:CSU) yesterday announced it had acquired Montreal healthcare software maker, Groupe PCMS.
Picking up assets, of course, is nothing new for Constellation, the company has acquired nearly two-dozen companies since the beginning of 2011.
Cantor Fitzgerald analyst Tom Liston says Constellation’s management is among the very best allocators of capital in the technology sector. He points out that the company has delivered 30% cash from operations CAGR over the last decade. He says Constellation’s cash flow growth, its acquisition track record, dividend, recurring revenue and insider buying add up to a stock that investors should consider as a core holding. This morning, after making upward revisions to his model based on recent acquisitions, Liston raised his target on Constellation to $135 and revised his rating to BUY.
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’s new target price on Constellation is based on 15x fiscal 2014 earnings, which he believes will come in a shade higher than $237-million.
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