Down 19% since August, Descartes Systems Group is a buy: Haywood

Following a third quarter that was in-line with his expectations, Haywood Securities analyst Pardeep Sangha is still bullish on Descartes Systems Group (Descartes Systems Group Stock Quote, Chart: TSX:DSG).

On Thursday, Descartes reported its Q3, 2019 results. The company earned (US) $7.9-million on revenue of $70.0-million, a topline that was up 13 per cent from the same period last year.

“Logistics is a multiparty, multiprocess problem, and it’s becoming increasingly complex with today’s dynamic global trade landscape,” CEO Ed Ryan said. “We believe that customers are looking for one place to collaborate with their supply chain and manage the life cycle of shipments. We believe that place is our global logistics network (GLN), which continues to gain momentum as we add participants, solutions and content for key constituents in the supply chain, including shippers, carriers, logistics intermediaries and government agencies. The GLN is a stable, reliable and trusted platform that we believe is poised for further growth as it continues to deliver incremental value to the supply chain community.”

Sangha says the combination of good results and a weakened share price adds up to a buying opportunity for investors.

“Shares are down 19% from a high of US$35.87 in August due to the market sell-off; however, we believe this decline is a buying opportunity given the Company has solid cash flows, high recurring revenue, a diversified customer base and a consistent track record of delivering predictable results,” the analyst says.

In a research update to clients today, Sangha maintained his “Buy” rating and one-year price target of (US) $37.25 on Descartes, implying a return of 29 per cent at the time of publication.

Sangha thinks DSG will post Adjusted EBITDA of (US) $93.7-million on revenue of $276.2-million in fiscal 2019. He expects those numbers will improve to EBITDA of $106.7-million on a topline of $305-million the following year.