Recent weakness in its stock is overdone, says Industrial Alliance Securities analyst Blair Abernethy, who on Thursday upgraded Kinaxis (Kinaxis Stock Quote, Chart: TSX:KXS) to a “Buy”.
On November 8, Kinaxis reported its Q3, 2018 results. The company earned (US) $2.66-million on revenue of $36.6-million.
“We continued to execute on key strategic initiatives this past quarter, including the expansion of our global sales and operations, particularly in Europe,” CEO John Sicard said. “Our overall pipeline continues to grow and strengthen. The current quarter and 2018 full-year subscription revenue growth is slightly lower than expectation due to a number of late-stage deals slipping outside of third quarter. We are very confident in closing these opportunities and, more importantly, remain confident in achieving our goal of accelerated growth in 2019. Our continuing success is built on the unique concurrent planning capabilities of our RapidResponse platform. Validating this differentiation, Gartner has once again recognized Kinaxis as a leader in their magic quadrant for supply chain planning system of record, positioning us as the leader with respect to completeness of vision. Ventana Research provided further validation by honouring Kinaxis as a digital innovation award winner in the operations and supply chain category for our use of machine learning techniques to create the Kinaxis self-healing supply chain solution. I am more excited than ever about our position in the market and our opportunity to help companies transform their supply chain performance.”
Abernethy says the steep selloff in shares of Kinaxis is now overdone.
We believe that the recent weakness in Kinaxis’ share price following its Q3 results (combined with recent technology equity market weakness) is now at the point of being overdone. While near-term market volatility is likely to continue, we think current levels represent an attractive entry point for Kinaxis investors with a one- to two-year time horizon.”
In a research update to clients today, Abernethy upgraded Kinaxis from “Hold” to “Buy” while maintaining his one-year price target of $88.00 on the stock, implying a return of 34.3 per cent at the time of publication.
The analyst thinks KXS will generate Adjusted EBITDA of (US) $41.1-million on revenue of $152.0-million in fiscal 2018. He expects those numbers will improve to EBITDA of $49.4-million on a topline of $179.2-million the following year.
We continue to believe that there are on the order of 1,000-1,500 potential customers that could be targeted globally, thus providing a TAM for Kinaxis measuring at least in the $2.0-4.5B range, given the current product offering,” the analyst adds. “The SaaS revenue model consists of over 75% of revenue from annual subscriptions, and customers that make long-term commitments to the product. With its backlog ($198M) and revenue visibility, we believe that Kinaxis can continue to operate at healthy profit margins and reinvest for future organic growth.”
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