Buy Cortex despite negative sentiment in the energy space, PI says

Following the company’s first quarter results, PI Financial analyst David Kwan remains bullish on Cortex Business Solutions (Cortex Stock Quote, Chart TSVX:CBX).

On Wednesday, Cortex reported its Q1, 2019 results. The company earned $1.11-million on revenue of $3.3-million, a topline that was up three per cent over the same period last year.

“With our first months now behind us after the Powervision acquisition, we are already starting to see the synergies that we had expected from combining the two companies. We have made two new sales of the complete Cortex platform since the acquisition, and our pipeline for the combined solution is growing rapidly,” CEO Joel Leetzow said.

Kwan says that while the company’s revenue came in where he expected, the company bested what he had modeled for Adjusted EBITDA. He points to what he calls “solid” free cash flow generation and a Return on Equity that surpassed 20 per cent once again. The analyst says the stock is attractive despite its headwinds.

“The negative sentiment in the energy space, particularly in Canada, is likely helping hold the stock back despite the strengthening in key financial metrics resulting in CBX’s valuation becoming even more attractive,” Kwan says. “The business has proven to be resilient in tough times (driven by a strong customer value proposition) and is even more so now given the larger base of recurring revenue. We believe the acquisition of Powervision and recent investments in the business should help drive stronger growth and profitability next year, which should help the stock outperform.”

In a research update to clients today, Kwan maintained his “Buy” rating and one-year price target of $7.25 on Cortex Business Solutions, implying a return of 100.3 per cent at the time of publication.

Kwan thinks CBX will generate Adjusted EBITDA of $3.4-million on revenue of $15.2-million in fiscal 2019. He expects those numbers will improve to EBITDA of $5.8-million on a topline of $18.8-million the following year.