As industry giants double down on the transportation and logistics space, Waterloo’s Descartes Systems Group (TSX:DSG) could become a takeout target, says Cantor Fitzgerald Canada analyst Blair Abernethy.
On the conference call following Descartes’ Q1, 2015 results yesterday, Abernethy noted that management acknowledged a new global collaboration between SAP and IBM.
“Across the globe, transportation companies such as ocean liners, freight forwarders and railways recognize that challenges from energy costs to economic volatility remain outside their direct control, SAP and IBM said in a joint-press release issued this morning. “However, they can drive improved performance via superior service to their customers if they evolve core business process execution with analytics, cloud computing, mobile and other technology advances. IBM and SAP intend to meet this market need by delivering a next-generation transportation platform that aims to standardize functional processes while enabling innovation at the business process level to improve operational performance. ”
Abernethy says Descartes’ “unique network of logistics industry participants” puts it in a valuable position and thinks this development is a positive for the company. “…we see SAP’s growing commitment to the transportation and logistics vertical as increasing the likelihood of an eventual take-out by SAP,” he said in a research update to clients this morning.
In the nearer term, Abernethy says Descartes’ Q1 was in-line with his expectations. The company posted adjusted EBITDA of $12.1-million on revenue of $40.8-million. He had them pegged for $11.6-million on a $40.7-million topline.
The Cantor analyst’s expectations for the remaining three quarters, however, are softer. This morning, Abernethy lowered his fiscal 2015 revenue target on Descartes to $168.8-million, down from his previous estimate of $173.6-million. He also lowered his estimate for 2016, to $181.2-million, down from $189.9-million. As a result of these actions, Abernethy this morning dropped his price target on Descartes to (US) $15.50, down from his previous target of $16.00. He maintained his “Buy” rating on the stock.