Cantor Fitzgerald and PI raise their targets on Descartes Systems

Both PI analyst Pardeep Sangha and Cantor Fitzgerald analysts Tom Liston and Justin Kew have this morning raised their one-year price targets on Waterloo’s Descartes Systems Group (Descartes Systems Group Stock Quote, Chart, News: TSX:DSG).

Descartes yesterday reported its Q1, 2014 financial results. The company earned (U.S.) $2.8-million on revenue of of $34-million, a topline that was up 14% from the $29.9-million the company posted in the same period last year.

Sangha says he views the quarter as slightly positive. He says acquisitions, such as the recent pickup of Norway’s KSD Software, are driving the company’s growth. He says Descartes is benefiting from the fact that governments around the world are mandating compliance solutions for trade and security. The results and subsequent guidance were enough, he says, to increase his target price, but only slightly, from $12 to $12.25. He gives Desacrtes a higher multiple than its software peer group, but still lower than its SaaS peer group, and maintains a BUY rating on the stock.

Liston and Kew, meanwhile, maintain a TOP PICK rating on Descartes. The Cantor Fitzgerald analysts point out that Descartes trades at a steep discount to its peer group of SaaS and logistic technology comparables, which includes SciQuest, Vocus, and SalesForce.com.

The peer group, they note, has a calendar 2014 EV/EBITDA of 22.0×, which is approximately double Descartes’ multiple. But they say Descartes has high recurring revenue and industry leading margins, and should be valued much more in line with its peers than it currently is. In a research update to clients this morning, the analysts raised their target on Descartes to (U.S.) $13, up a dollar from their previous $12 one-year target.