Kinaxis is still a buy, Laurentian Bank says

Ahead of Kinaxis Inc.’s (Kinaxis Stock Quote, Chart, News: TSX:KXS) fourth quarter 2017 results due next week, analyst Nick Agostino of Laurentian Bank Securities says he’s focused on a number of variables for the supply chain software company, namely, how Q4 bears out Kinaxis’ subscription growth, professional services sales and its EBITDA margin.

“Beyond a potential Q4 positive read through regarding client wins, we need to see strong subscription growth and further EBITDA expansion to gain increased comfort on SI contributions,” says the analyst in a note to clients on Wednesday.

Agostino says he’s looking for subscription growth of 19 per cent, which would be a slowdown in comparison to rates posted over the last five quarters. The analyst expects the company’s EBITDA margin for Q4 to come in at 27.2 per cent and for Kinaxis’ sales and EBITDA to come in slightly ahead of consensus, with adjusted EPS of $0.22 (USD) and an estimated net cash at the end of Q4 of $160.9 million.

The Ottawa-based company saw its share price jump in January after it was revealed that the world’s number one auto maker, Toyota, would be signing up with Kinaxis’ RapidResponse supply chain management cloud-based software. Last year, the company confirmed both Nissan and Volvo as subscribers, as well.

Agostino has a “Buy” rating on KSX-T with an $88 (CDN) one-year target price, based on 9x 2018/2019 sales estimates, representing a 5.8 per cent return on investment as of publication date.

“We recognize a disconnect between our target price and recommendation following the 10% run-up in the shares post the Toyota contact announcement on January 23 as investors regained confidence in the company’s growth prospects,” says the analyst. “We will revisit our estimates, target price and recommendation post results.”