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Descartes Systems keeps Buy rating with Laurentian


Ahead of quarterly earnings expected on March 1 from Canadian logistics solutions company Descartes Systems Group (Descartes Systems Group Stock Quote, Charts, News, Analysts, Financials NASDAQ:DSGX), analyst Nick Agostino of Laurentian Bank Securities issued a report on Friday where he reiterated a “Buy” rating on the stock, saying a flat global trade flow environment will likely keep quarterly numbers in-line with estimates.

Descartes has a SaaS platform for logistics-intensive industries to help companies optimize and automate processes including planning, routing, scheduling and tracking deliveries, order tracking, invoicing, auditing, and the filing of customs and security documents for cross-border trade.

The stock has risen notably over the past ten months, going from a low of about $56 to now around $75 per share. But Agostino sees more upside and has maintained a 12-month target price of $82.00, which at press time represented a projected return of 10.1 per cent.

On the upcoming fourth quarter fiscal 2023 numbers (ended January), Agostino is expecting sales to be up about 11 per cent year-over-year to $124.6 million, which would be in-line with the company’s baseline guidance of 11 per cent and within the historical range of between ten and 15 per cent. Agostino said about five per cent of that growth should be organic, which would also be in-line with historical norms. (All figures in US dollars.)

“Per the FQ3 call, macro tailwinds continue to support DSG’s sales performance including: 1) a dynamic environment in tariffs and duties abroad; 2) strong demand for global trade intelligence solutions, specifically due to the Ukraine war, China and Iran; 3) demand for the MacroPoint platform; 4) record volumes for real time visibility; 5) strong retail activity; and 6) ongoing supply chain logistics cost management, particularly due to inflation and high freight costs,” Agostino wrote.

On earnings, Agostino is expecting $56.0 million in EBITDA, which would represent an 11.8 per cent year-over-year increase and a margin of 44.9 per cent. 

On valuation, Agostino sees DSG to be currently trading at 26.4x EV/next 12 months EBITDA, which is at the midpoint of its seven-year trading range of 17x-36x. Comparatively, the analyst said DSG’s supply chain and logistics peers are trading at 28.8x, software consolidators are at 12.2x and Descartes’ comparable, Australia-based logistics company WiseTech Global, trades at 44.5x.

Further ahead, Agostino is calling for full fiscal 2024 sales and EBITDA from Descartes of $540.9 million and $248.7 million, respectively.

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