Time to take a breather on Constellation Software, says Cantor Fitzgerald

Cantor Fitzgerald analyst Tom Liston says its time to take a breather on Constellation Software (Constellation Software Stock Quote, Chart, News: TSX:CSU).

This morning, Constellation announced that it had completed, through its through its wholly owned subsidiary N. Harris Computer Corp., the acquisition of Virginia-based healthcare IT company QuadraMed.

Liston estimates this acquisition, which he thinks Constellation paid between $60 to $135 million for (financial details were not disclosed, and Liston’s estimates are based on the number of employees and traditional valuation ranges) is the largest in the company’s history, and could add $60 to $90 million in annual revenue.

But while Liston is optimistic that Constellation can continue to add to its topline, he is simultaneously unenthusiastic about the company’s potential for near-term share price appreciation. He notes that the company’s remarkable run, in which its shares have gone up 275% over the past three years versus just 8% for the S&P TSX index overall, means Constellation is now in line with his target price. In a research update to clients this morning, Liston increased his 12-month target price to $150 from $148, but downgraded the stock from BUY to HOLD.

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 Canada’s most successful. Constellation, which makes software for the public and private sector, 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. Constellation, which has acquired nearly two-dozen companies since the beginning of 2011, has grown its revenue from just $243 million in fiscal 2007 to more than $891-million in 2012.

Liston says his target is based on 15× his estimate of Constellation’s fiscal 2014 earnings.