Descartes scores a target raise with Laurentian Bank

Things continue to trend nicely for Descartes Systems Group (Descartes Systems Group Stock Quote, Charts, News, Analysts, Financials NASDAQ:DSGX), according to Laurentian Bank Securities analyst Nick Agostino, who reviewed the latest quarterly results from Descartes in a client update on Thursday.

Agostino kept a “Buy” rating on the stock while raising his target price from $82 to $85 per share, saying the logistics company continues to deliver top and bottom line growth despite a challenging macro environment.

Descartes Systems, which has a SaaS platform for optimizing and automating logistics-related processes, announced on Wednesday its fourth quarter fiscal 2023 financials for the period ended January 31, 2023. The company saw revenue climb 14 per cent year-over-year to $486.0 million, while adjusted EBITDA was up 16 per cent to $215.2 million and EPS was up 18 per cent to $1.18 per share on a diluted basis. (All figures in US dollars.)

Last month, Descartes announced the acquisition of cloud-based and final-mile carrier solutions company GroundCloud for $138 million. Meanwhile, the company finished the fiscal Q4 with cash of $276.4 million.

“We invest both organically and through acquisitions consistent with customer feedback on how we can deliver more value to them,” said Edward J. Ryan, CEO, in the fourth quarter press release. “Our recent acquisition of GroundCloud reflects our customer-focused investment strategy, adding a road safety compliance platform to help fleets meet delivery commitments efficiently with worker and community safety at the forefront.”

Looking at the Q4 numbers, Agostino said the $125.1 million in revenue was in-line with his estimate at $124.6 million and above the consensus call at $123.5 million, while adjusted EBITDA at $55.4 million was also in-line with Agostino’s estimate at $56.0 million and the Street’s $55.1 million.

Agostino noted that Q4 sales were hindered by a $3 million foreign exchange headwind due to the strengthened US dollar over the quarter. 

“While operating in a cautious environment, DSG continues to deliver on sales and EBITDA growth and deliver strong margins. That said the environment is showing signs of improvement, which should benefit results through F2024. We also note, while GroundCloud is expected to dilute margins slightly, its higher growth rate offers an offset and allows for key EBITDA margin metrics, including 10-15% YoY growth, to remain intact,” Agostino wrote.

The analyst said his raised target comes from a shift in valuation to fiscal 2025 numbers, where he is now calling for full 2024 and 2025 sales of $550.3 million and $587.7 million, respectively, and for 2024 and 2025 EBITDA of $236.8 million and $255.2 million, respectively. 

Agostino estimates Descartes to be currently trading at 26.2x next 12 months EBITDA versus supply chain/logistics peers at 28.1x, software consolidators at 12.2x and comparable company Wisetech Global at 44.9x. 

At press time, the new $85.00 target represented a projected one-year return of 15.8 per cent.