Echelon lowers target on Enghouse Systems, maintains buy

A quarter that was worse than he expected has Echelon Wealth Partners analyst Ralph Garcea lowering his price target on Enghouse Systems (Enghouse Systems Stock Quote, Chart, News: TSX:ENGH).

Last Thursday, Enghouse reported its Q3, 2017 results. The company earned $11.18-million on revenue of $82.8-million, a topline that was up 8.4 per cent over the $76.4-million the company posted in the same period a year prior.

Garcea notes that Enghouse missed his expecatations on both the top and bottom line. The analyst had modeled revenue of $87.7-million, Adjusted EBITDA of $25.1-million (ENGH posted EBITDA of $22.7-million) and EPS of $0.48, which was seven cents better than the actual $0.41 the company earned in the quarter.

Garcea says foreign exchange weakness, which he says has had an $8.2-million impact on top line performance year-to-date, was the culprit for the weak quarter. He sees this trend continuing.

“We see continued FX headwinds as the USD weakness has persisted into the current quarter,” the analyst says. “ENGH derives ~70% of revenues outside the US.”

In a research update to clients today, Garcea maintained his “Buy” rating, but lowered his one-year price target on Enghouse Systems from $65.00 to $61.00, implying a return of 17 per cent at the time of publication.

Garcea thinks Enghouse will post Adjusted EBITDA of $89-million on revenue of $325-million in fiscal 2017. He expects those numbers will improve to EBITDA of $95-million on a topline of $351-million the following year.