Pivot Technology Solutions has 216% upside, Echelon Wealth says

A soft Q3 isn’t shaking Echelon Wealth Partners analyst Gianluca Tucci’s faith in Pivot Technology Solutions (Pivot Technology Solutions Stock Quote, Chart TSX:PTG)

Friday morning, Pivot issued a press release that detailed management changes and provided an outlook for the second half of fiscal 2018, in which management said Q3 revenue is expected to come in at approximately (US) $321-million, down from $389-million last year, albeit with a better margin profile.

“Marketplace changes reinforce how important executing our strategy is to the long-term growth plans of our company,” said CEO Kevin Shank. “We remain confident that the approach we’re taking is right for our customers and shareholders and that today’s management appointments will help us accelerate our integration plans and facilitate the ongoing commercial transformation.”

Tucci says this softness was expected and says he believes the fourth quarter will see a return to more normal seasonality.

“Today’s update leads us to believe that majors had less of a revenue impact in Q318 given that business associated with majors typically commands lower margins while services are having a better impact on margins,” the analyst says. “We believe significant business shifted from Q3 to Q4 given the external influences at play in the quarter. In fact, we believe our original estimates of $367M/$6.2M/$0.01 could have been exceeded were it not for these external factors. With respect to our Q418 estimates, we believe the shift of revenue from Q3 to Q4 could allow for significant revenue outperformance although it would have a much more modest EBITDA contribution given the lower margins associated with revenue from the majors.”

In a research update to clients today, Tucci maintained his “Buy” rating and one-year price target of $3.00 on Pivot Technology Solutions, implying a return of 216 per cent at the time of publication.

Tucci thinks Pivot will generate EBITDA of $19.0-million on revenue of $1.44-billion in fiscal 2018. He expects those numbers will improve to EBITDA of $33.0-million on a topline of $1.45-billion the following year.