Descartes Systems Group gets new $55.00 target at Echelon Wealth

After fourth quarter results from Descartes Systems Group (Descartes Systems Group Stock Quote, Chart TSX:DSG), analyst Gianluca Tucci with Echelon Wealth Partners has raised his target price, citing the logistics company’s best-in-class visibility.

On Wednesday, Waterloo, Ontario-based Descartes announced its fiscal Q4 and year ended January 31, 2019, reported revenues of $71.0 million for the quarter, up 12 per cent year-over-year, and Adjusted EBITDA of $25.0 million, up 17 per cent year-over-year. For the year, the company’s revenues were $275.2 million, up 16 per cent year-over-year and Adjusted EBITDA was $93.9 million, also up 16 per cent. (All figures in US dollars unless otherwise noted.)

“The Global Logistics Network continues to grow with new customers joining the community and existing customers increasing their use of our expanding solution set,” CEO Ed Ryan said. “We believe our focus on providing one place for shippers, carriers, logistics intermediaries and government agencies to collaborate and manage the complete lifecycle of shipments is contributing to this growth. We’re excited about the numerous opportunities we have to expand the value we bring to the global logistics community by continuing to make focused investments in organic and inorganic growth.”

Tucci says the quarterly results were in line with expectations (his revenue and Adjusted EBITDA estimates were $71.4 million and $24.9 million, respectively, and the Street’s revenue and Adjusted EBITDA estimates were $71.2 million and $24.8 million, respectively).

Tucci has “modestly” raised his fiscal 2020 estimates on the heels of the better than expected near-term outlook.

“We maintain our view that the secular shift from ‘bricks-to-clicks’ continues to provide robust tailwinds for DSG’s business and expect momentum to continue into fiscal 2020, coupled with additional acquisitions. Management continues to target 10-15 per cent year-over-year growth in annual Adj. EBITDA,” says Tucci in a client update on Wednesday.

“The macro trade regulatory environment remains ‘hairy’ but we believe DSG is well positioned to benefit from increased e-commerce volumes. On May 24, 2018, Descartes filed a preliminary short-form base shelf prospectus for up to $750 million, which we expect to be drawn down for strategic acquisitions,” he says.

Tucci says that DSG is currently trading at 8.4x his calendar 2019 EV/Sales estimate, 23.6x his EV/EBITDA estimate and 62.0x his P/E estimate, all of which compare to its SCM peers at 6.1x/26.9x/38.2x and its SaaS peers at 7.9x/51.0x/90.2x.

The analyst is maintaining his “Buy” rating with the raised target price of C$55.00 (previously C$52.00), which represents a projected return of 21 per cent at the time of publication.