Echelon raises price target on Constellation Software to $1100

Following the company’s first quarter results, Echelon Wealth Partners analyst Ralph Garcea has a bullish feeling about Constellation Software (Constellation Software Stock Quote, Chart, News: TSX:CSU).

Last Wednesday, Constellation reported its Q1, 2018 results. The company earned (U.S.) $82.54-million on revenue of $71-million, a topline that was up 29 per cent over last year’s first quarter.

Garcea says this was a strong quarter, across the board, for CSU.

“Total Public Sector revenue grew 30% y/y to $486M (up 5% organically), with maintenance/recurring revenue increasing 34% y/y (up 7% organically),” the analyst notes. “Total Private Sector revenue grew 29% y/y to $233M (up 5% organically), with maintenance/recurring revenue increasing 31% y/y (up 9% organically). We remain encouraged by CSU’s efforts to continue growing recurring revenue as a percentage of total. We believe a ceiling to EBITDA margin exists due to being in 80+ verticals, with limited cost synergies across the full spectrum.”

In a research update to clients today, Garcea maintained his “Buy” rating, but raised his one-year price target on Constellation Software from (C) $1000 to $1100, implying a return of 20 per cent at the time of publication.

Garcea thinks CSU will generate Adjusted EBITDA of (U.S.) $747-million on revenue of $3.02-billion in fiscal 2018. In fiscal 2019, he expects EBITDA of $889-million on revenue of $3.45-billion.