TECSYS is undervalued, says PI analyst Pardeep Sangha

TECSYS’s (TSX:TCS) second straight quarter of record revenue is the quickest way to see that it is gaining traction, but scratching the surface reveals that the company is capitalizing on longer industry trends, says PI analyst Pardeep Sangha.

Last Thursday, TECSYS reported its Q3, 2014 results. The company earned $467,000, or four cents per share, on revenue of $11.8-million, up 14% over last year’s Q3.

CEO Peter Brereton explained the reasons for the upswing.

“Our sales pipeline is growing and we are seeing good traction across all verticals, particularly from health care,” he said. “Specifically, we believe our leadership position in the health care market provides opportunities to expand our client base and drive new product offerings with our proprietary software.”

Sangha points out that as the U.S. government looks to reduce health care expenses, healthcare supply networks are seeing efficiency gains as they comply with new tracking regulations for implantable device and drugs. He says the healthcare vertical has traditionally accounted for 20% of TECSYS’s overall revenue, but management now expects that number will move to 50% going forward.

Sangha, who covered TECSYS but did not have a rating or target price on the stock, changed that on Friday, rating the stock as a BUY with an $8.00 one-year target.

The PI analyst notes that TECSYS is beginning to reap the benefits of ramping up its professional services organization in 2013. This is having the immediate effect of bolstering the company’s gross margin, which he points out grew from 37% in last year’s third quarter to 42% in this year’s.

Shares of TECSYS closed today down 1.8% to $5.90.

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