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Constellation Software’s Q4 was a "vast outperformance", says Euro Pacific

Constellation Software

Constellation SoftwareConstellation Software’s (Constellation Software Stock Quote, Chart, News: TSX:CSU) fourth quarter results were a “vast outperformance”, says Euro Pacific Canada analyst Andrej Krneta.

Yesterday, Constellation reported its fourth quarter and fiscal 2016 results. In the fourth quarter, the company earned $66-million on revenue of $512-million, an increase of 16 per cent over the $440-million topline the company posted in 2014’s fourth quarter.

In a research update to clients today, Krneta maintained his recently upgraded “Buy” recommendation on Constellation, but raised his one-year price target on the stock from $570.00 to $610.00, implying a return of 19 per cent at the time of publication.

Krneta says Constellation still has potential risks in the form of near term margin pressure and an iffy macro environment. But the analyst expects that the company will see revenue growth acceleration and a 20 per cent EBITDA rise in 2016. He believes this time will be a noteworthy period of sustainable cash generation through the macro cycle.

“Constellation Software reported a robust set of Q415 results (yesterday after market close), vastly outperforming estimates,” says Krneta. “One-time sales helped drive the windfall, but indicated potential for an upside going into H116e. Strong dealflow, margin expansion, and solid balance sheet reported in Q415 position CSU well for a solid 2016, amid volatile macro. The results have broken a three-quarter streak of revenue shortfalls and mixed showing on the bottom line. Our rating upgrade to a Buy (from Hold) going into results was underpinned by expectations of countercyclical revenue support and defensive profile.”

Shares of Constellation Software closed today down 0.8 per cent to $515.00.

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About The Author /

Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.
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