Pivot Technology Solutions has 166% upside, Echelon Wealth says

Following the company’s fourth quarter results, Echelon Wealth Partners analyst Ralph Garcea remains bullish on Pivot Technology Solutions (Pivot Technology Solutions Stock Quote, Chart, News: TSX:PTG).

On Tuesday, PTG reported its Q4 and fiscal 2017 results. In the fourth quarter, the company lost (U.S.) $2.6-million on revenue of $399.4-million, a topline that was up 1.4 per cent from the same period last year.

“Adjusted EBITDA (1) increased 31.5 per cent, and income before taxes increased 34.1 per cent compared to fourth quarter 2016,” CEO Kevin Shank said. “The company increased fourth quarter earnings performance while at the same time making investments in the services area and developing our Smart Edge solution. During the quarter, we focused on SG&A [selling, general and administrative] cost management, improving rebate metrics and increasing services margins. For the full year, Pivot’s services business led the way with annual growth of 13.5 per cent in our own direct services and 8.5-per-cent growth in OEM [original equipment manufacturer] maintenance services. Across the board, all channels, including professional services, fulfilment, project, work force and managed services, executed well and produced upward movement in services margins.”

Noting the improvement in EBITDA margins, Garcea says this was a good quarter for Pivot. The analyst says the company has the wind at its back.

“The secular trends play to Pivot’s strengths: (1) higher IT spending; (2) greater IT complexity and innovation requires specialized expertise; (3) increased IT pressure for “always on” as platforms move to the cloud and provide more opportunity for Pivot’s lifecycle support; and (4) broader IT supply chain rationalization is driving the need for scale,” Garcea says.

In a research update to clients today, Garcea maintained his “Buy” rating and one-year price target of $5.50 on Pivot Technology Solutions, implying a return of 166 per cent at the time of publication.

Garcea thinks PTG will generate EBITDA of (US) $28.0-million on revenue of $1.57-billion in fiscal 2018. He expects those numbers will improve to EBITDA of $39.0-million on a topline of $1.61-billion the following year.

“With core fundamentals illustrated by y/y margin growth improving, and hidden value in Smart Edge, we maintain our BUY rating and DCF-based target of C$5.50, and reiterate PTG as one of our Top Picks,” the analyst says