National Bank says Coveo Solutions is a double from here

Strong quarterly results from Coveo Solutions (Coveo Solutions Stock Quote, Charts, News, Analysts, Financials TSX:CVO) have National Bank Financial analyst Richard Tse staying bullish on the artificial intelligence solutions stock in a Monday report to clients. Tse maintained an “Outperform” rating on Coveo while lowering his target price from C$13.00 to C$11.00 on a more challenging macro environment.

Coveo, which offers cloud-based AI SaaS solutions to businesses and organizations across a number of industries, released on Monday its second quarter fiscal 2023 financials for the period ended September 30, 2022. Total revenue was up 43 per cent year-over-year to $27.9 million and the net loss was $9.9 million compared to a net loss of $61.9 million a year earlier, where the Q2 fiscal 2021 was hit by a non-cash loss of $39.2 million along with income tax expenses of $10.9 million. (All figures in US dollars except where noted otherwise.)

“Our solid second quarter results reflect our strong relationships with enterprise customers who view Coveo as a mission-critical component of their digital experiences that help to optimize business outcomes,” said Louis Têtu, Chairman and CEO, in a press release.

Coveo’s top and bottom lines arrived better than expected, with the $27.9 million in revenue beating the National Bank estimate at $26.9 million as well as the consensus at $26.9 million. Tse said the company’s adjusted operating loss of $4.7 million was also better than his forecast at negative $6.9 million and the Street’s call at negative $7.0 million.

Tse noted that Coveo’s SaaS Subscription Revenue was up 47 per cent year-over-year to $25.5 million, again better than his expected $24.7 million. Tse said that organic growth was driven by a combination of new customer wins and expanded orders with existing customers. On the M&A front, Coveo also built out through the acquisition of Qubit, while Tse also noted Coveo’s recent release of new enhancements to its Merchandising Hub and deepening relationship with Salesforce, both of which will help fortify Coveo’s platform, according to Tse.

“In our view, the FQ2 results has Coveo tracking largely in line with the investment thesis [which holds] that Coveo is democratizing Artificial Intelligence (AI) for the enterprise masses, enabling a secular step function up in technology for those enterprises who lack the scale and expertise to develop those solutions in-house,” Tse wrote.

“Bottom line, at 1.9x EV/S (F23), we see a favourable valuation case for this name given its relative growth profile and market leadership combined with a well-capitalized balanced sheet ($204.8 million in cash and no debt),” he said.

At press time, Tse’s new C$11.00 target represented a projected one-year return of 106.8 per cent.