Constellation Software’s second quarter was an upside surprise, says Echelon

Constellation Software’s (Constellation Software Stock Quote, Chart, News: TSX:CSU) extended run is one of the greatest in Canadian tech history, but the company’s second quarter results show it still has the power to surprise.

Yesterday, Constellation Software reported its second quarter results. The company earned $54.99-million on revenue of $529-million, a topline that was up 19 per cent over the same period last year.

Echelon Wealth Partners analyst Andrej Krneta says the results were a surprise to the upside. He notes that EBITDA of $135.6M came ahead of his $132M estimate and the street consensus of $131-million. And the company’s topline beat his estimate of $517-million and the slightly less bullish street consensus of $514-million, handily.

“Constellation Software reported a robust set of Q216 financials,” says Krneta. “The results came above our expectations, positioned ahead of consensus estimates. We expected growth trends to normalize from a more subdued Q1. However, an organic growth recovery and more tempered FX headwinds proved our estimates modest. Thus, Constellation reported numbers that came in largely stronger compared to expectations. Margin recovery was seasonal as new bonus expense distribution tilted to Q1. In turn, H116 saw a stellar EBITDA upside that we believe will firm up conviction in our growth expectations for 2016e. FCF growth remained in line with the earnings trends.”

In a research update to clients today, Krneta maintained his “Buy” rating and one-year price target of $580.00 on Constellation Software, implying a return of 12 per cent at the time of publication.