A better than expected quarter from Kinaxis (TSX:KXS) has National Bank Financial analyst Richard Tse revisiting his price target on the stock.
Yesterday, Kinaxis reported its Q1, 2017 results. The company earned (U.S.) $3.22-million on revenue of $32.5-million, a topline that was 20 per cent better than the same period last year.
“Our growth continues to be fuelled by expansion of our subscription revenue base, which increased 29 per cent in the first quarter,” said CEO John Sicard. “Global enterprises are turning to Kinaxis to solve their end-to-end supply chain management challenges with concurrent planning, enabling real-time simulation, collaboration and decision-making between previously disconnected teams. Our unique business model, supported by our technologically advanced platform, enable us to deliver consistent, top- and bottom-line growth and robust cash generation.”
Tse says despite the fact that the stock is pricey, investors should stick with Kinaxis because it is a winner. The analyst dug down on why he though the quarter bodes well for the company’s future.
“What’s key is that the important metric of subscription revenue growth continued to consistently drive higher, coming in at 29% year over year,” he said. “With guidance for continued subscription revenue growth of 26% – 28% for 2017, that reinforces our view that the outlook in light of the opportunity even beyond 2017 should continue to drive KXS’s stock price -despite the big run already. As you would expect, our biggest pushback is nearly always valuation. We’re not oblivious to that, but our perspective is that Kinaxis’s small market share of below 5% (around 100 customers) means the growth path is long, which is also why we value the name using a DCF. In our view, the Company continues to take share away from big incumbents like SAP, Oracle and JDA while expanding its base of new customers (65% of revenue in the quarter) while existing ones add to its deployments (2x over three years).”
In a research update to clients today, Tse maintained his “Outperform” rating on Kinaxis, but raised his one-year price target on the stock from $85.00 to $100.00, implying a return of 18 per cent at the time of publication.
Tse thinks Kinaxis will generate EBITDA of (All figures USD) $37.4-million on revenue of $143.6-million in fiscal 2017. He expects these numbers will improve to EBITDA of $46.5-million on a topline of $175.3-million the following year.