Descartes Systems Group is looking fully valued, says Industrial Alliance

It’s had a strong multi-year run on the back of ever-improving results, but Industrial Alliance Securities analyst Blair Abernethy says it’s time for a breather on Descartes Systems Group (TSX:DSG, Nasdaq:DSGX).
On Thursday, September 8, before market open, Descartes will report its Q2, 2017 results. Abernethy expects the company will generate EBITDA of $16.7-million on revenue of $50.1-million, numbers that are in-line with the street consensus of EBITDA of $16.9-million on revenue of $50.5-million.
Abernethy says Descartes is now a story of simultaneous headwinds and tailwinds.
“We will be keying in on signs of traction in the retail vertical, performance in recently acquired businesses (such as MK Data), and regulatory tailwinds,” he says. “However, from a macro perspective, we note that US rail and freight indexes have been somewhat weaker this year, which could impact some of Descartes’ transaction volumes. Key catalysts for the stock this year include materially accretive acquisitions, a more rapid pace of large retailer project wins, and an uptick in organic network revenue growth.
Abernethy thinks Descartes will generate EBITDA of $67.7-million on revenue of $202.6-million in fiscal 2017, numbers he expects will grow to EBITDA of $74.1-million on revenue of $216.5-million the following year.
In a research update to clients today, Abernethy maintained his “Hold” rating and one-year price target of $21.00 on Descartes Systems Group, implying a return of 1.2 per cent at the time of publication.