Hold Descartes Systems ahead of Q3 results, says Industrial Alliance

Weaker U.S. rail and freight indexes are tempering Descartes Systems Group’s (TSX:DSG, Nasdaq:DSGX) progress in retail and it potential for accretive acquisitions, says Industrial Alliance Securities analyst Blair Abernethy.
On Wednesday, November 30, after market close, Descartes will report its Q3, 2017 results. Abernethy says he is expecting that Descartes will generate EBITDA of $17.4-million on revenue of $51.2-million in the third quarter, essentially in-line with the street consensus of EBITDA of $17.6-million on a topline of $50.9-million.
The analyst notes that with an undrawn secured credit facility of $150-million and a recently filed shelf prospectus for $500-million, Descartes has the means to continue to make acquisitions that can leverage its Global Logistics Network, logistics industry customer base, and its broad offering of logistics-related applications. He notes that the company has battled foreign exchange headwinds and weak U.S. rail and freight indexes, but points out that these have been countered somewhat by traction in the retail vertical.
“We continue to watch for key catalysts this year including more materially accretive acquisitions, a more rapid pace of large retailer project wins, and an uptick in organic network revenue growth driven in part from cross-selling of recently acquired product lines,” says Abernethy.
In a research update to clients today, Abernethy maintained his “Hold” rating and one-year price target of (U.S.) $21.00, implying a return of -6.2 per cent at the time of publication.
Abernethy believes Descartes will post EBITDA of $69.4-million on revenue of $203.5-million in fiscal 2017. He expects these numbers will improve to EBITDA of $76.1-million on a topline of $220.6-million the following year.