Cantor Fitzgerald gives Descartes Systems Group a price target raise

A record quarter for Descartes Systems Group (Descartes Systems Stock Quote, Chart, News: TSX:DSG, Nasdaq:DSGX) has Cantor Fitzgerald Canada analyst Ralph Garcea raising his price target on the stock.

Yesterday, Descartes reported its Q2, 2016 results. The company earned (U.S.) $5.77-million on record revenue of $50.5-million, a topline that was up 12 per cent from the $45.2-million the company reported in last year’s second quarter.

“This was another quarter of superior financial performance for Descartes, with record revenues and cash provided by our operations,” said CEO Ed Ryan. “We believe that Descartes’s strong and growing margins demonstrate the leverage in our business model and global logistics network to efficiently deliver quality services to our global client base. Descartes is a solid platform for continued growth and acquisitions, with the capital capacity and opportunities to continue or accelerate our pace of profitable growth.”

Garcea says the results came in about where he expected, with the topline a little lower and bottom a little higher than he had modeled. The analyst says the company’s increasingly strong balance sheet should pave the way for more mergers and acquisitions activity.

“The recent acquisitions (pixi* (Germany), Oz (US), MK Data Services (US), BearWare (US), Airclic (US), e-customs (UK), Pentant (UK) and Customs Info (US)) should deliver both inorganic and organic growth going forward as DSG can now cross-sell the acquired solutions across geographies and into a global customer base,” says Garcea. “For example, the pixi*/Oz/MK Data/Customs Info offerings are highly complementary. Oz clients can now see if their customers are on a “do not ship” list and what tariffs are in the region they are shipping to. With cash now at ~$70M, only ~5% drawn on the credit facility of $150M, and a $500M mixed-shelf filed – the company has plenty of capital for more M&A.”

In a research update to clients today, Garcea maintained his “Buy” rating on Descartes Systems Group, but raised his one-year price target to $26.00/C$33.50 from $23.50/C$31.00, implying a return of 24 per cent at the time of publication.

Garcea believes Descartes will post Adjusted EBITDA of $71.2-million on revenue of $202.5-million in fiscal 2017, numbers he expects will climb to EBITDA of $88.2-million on revenue of $241.9-million the following year.