Descartes Systems gets new $50.00 target at Echelon Wealth Partners

A new acquisition for Descartes Systems Group (TSX:DSG) has Echelon Wealth Partners analyst Ralph Garcea raising his target price on the stock.

On Monday, Descartes announced it had acquired “certain assets” of Colorado-based mail and parcel scanner Velocity Mail for (US) $25.5-million.

“Global air carriers and their partners are key constituents on our global logistics network,” CEO Ed Ryan said. “By combining Velocity Mail’s solutions with the Descartes Global Air Messaging Gateway, the air carriers will now have one platform to manage the life cycle of all shipments, both e-commerce-focused mail and parcel shipments and larger freight shipments. The combination also strengthens our position in the growing global e-commerce market.”

Garcea today summarized the deal.

“We estimate these assets to carry $5-7M in revenue and $2.5-3.0M in EBITDA,” the analyst notes. “By leveraging mobile handheld computers that run the vMail software client, mail handlers can accurately track shipments and deliveries in real-time. vMail automates the entire process from route generation to accounting reconciliation, simplifying operational processes for all parties involved. The vMail solution is hosted in the cloud, giving secure access to all administrative functions and activities in real-time.”

In a research update to clients today, Garcea maintained his “Buy” rating, but raised his one-year price target on Descartes from $46.00 to $50.00, implying a return of 20 per cent at the time of publication.

Garcea thinks DSG will generate Adjusted EBITDA of $97-million on revenue of $283-million in fiscal 2019. He expects those numbers will improve to EBITDA of $128-million on a topline of $337-million the following year.