Absolute Software is our Top Pick, say Cantor Fitzgerald’s Kew and Liston

Investors should take a close look at Absolute Software (Absolute Software Stock Quote, Chart, News: TSX:ABT) say Cantor Fitzgerald analysts Justin Kew and Tom Liston, because they expect “significant capital appreciation in the near term” from the Vancouver-based security software company.

On Wednesday, Absolute reported its Q3, 2013 results. The company lost (U.S.) $453,161 on sales contracts that totaled $19-million.

While the analysts note that sales contracts were up just 1% year-over-year, they say this is a more than solid result considering that notebook shipments on the whole declined 13.9% in the same period of time.

The company addressed that concern directly the same day, when it announced that its mobile theft management would be available through all Apple channels and distribution. The company’s Computrace Mobile Theft Management for iPad and iPad mini devices work much the way its Lojack for Laptops product does, providing loss prevention and preparing information and court-ready evidence for local authorities about thefts that do occur.

Kew and Liston note that while management provided an outlook on the remainder of fiscal 2013 that was “muted”, they company says it does expect sales contracts to resume robust growth in 2014, largely from the iOS and Samsung markets. In a research update to clients yesterday, the analysts maintained their BUY recommendation on Absolute Software and increased their twelve-month target price to $10.00, up a dollar from their previous target of $9.

The Cantor Fitzgerald analysts says their target is based on a discounted cash flow model that equates to 11x their EV/Free Cash Flow estimate for fiscal 2015. They believe this number is easily justified by comparables and take out metrics that are much higher than that.

Shares of Absolute Software closed today up 1.4% to $7.26.