20 Tech stocks with Buy-equivalent ratings from National Bank

National Bank Financial recently published a Technology report where it reviewed over two dozen Canadian exchange-listed tech stocks under coverage, saying the second quarter of the year is likely to be less explosive for the sector than the first.

After the big technology stock pullback of 2022, Q1 2023 ended up being a nice rebound, with the S&P/TSX Info Tech Index up 26.5 per cent compared to the 4.6 per cent return for the broader TSX. The moderation of interest rates had a role to play, according to NBF analysts Richard Tse and John Shao, who see relatively more muted results from the sector over the Q2.

“Given that early year run, we think inertia is setting in as valuations have crept back up again to their historical averages against growing risk for a softening economic backdrop,” Shao and Tse wrote in their April 20 report.

“For investors looking ahead, we see our defensive technology names (CSU, GIB.a, OTEX) outperforming at this point with an opportunity to build positions in our OP-rated growth names that continue to consistently execute (AIF, DCBO, KXS, NVEI, SHOP, TCS, TIXT),” they said.

With that in mind, the analysts gave a rundown of Q1 2023 earnings expectations from the 25 tech stocks National Bank covers, 20 of which come with “Outperform” ratings and five with “Sector Perform” ratings. (All projected returns to target are listed as of the publication date of the NBF report.)

Stock: Alithya Group (Alithya Group Stock Quote, Charts, News, Analysts, Financials TSX:ALYA)

Rating: Sector Perform

12-month target price: $3.25

Projected return: 21 per cent

“In our view, the next few quarters are crucial from a stock re-rating perspective, and we will not be hesitant to get back on board if the Company continues to execute. For now, we maintain a Sector Perform rating with a target price of C$3.25 based on our multi-stage DCF model,” Shao wrote.

Stock: Altus Group (Altus Group Stock Quote, Charts, News, Analysts, Financials TSX:AIF)

Rating: Outperform

12-month target price: $75.00

Projected return: 37 per cent

“In the short term, we see risk to the stock given the Tax headwinds noted above. We’d view any weakness in the stock care of those headwinds as an opportunity to build positions given the continued execution in its main valuation driving segment, AA. Longer term, we see potential option value via automation in the Company’s Property Tax segment,” Tse wrote.

Stock: Blackline Safety (Blackline Safety Stock Quote, Charts, News, Analysts, Financials TSX:BLN)

Rating: Outperform

12-month target price: $6.00

Projected return: 109 per cent

“We expect in-line to slightly better-than-expected results for BLN’s FQ2 which ends on April 30th. For a name in a transition towards a balanced growth model, the upcoming quarter is important in terms of evaluating the execution of growth initiatives, including the full impact of the price increase, margin recovery of the hardware business and the opex management,” Shao said.

Stock: CGI Group (CGI Group Stock Quote, Charts, News, Analysts, Financials TSX:GIB.a)

Rating: Outperform

12-month target price: $160.00

Projected return: 21 per cent

“We believe CGI is moving back to its previous growth trajectory (both organic and inorganic) pre-COVID. Bottom line, we continue to believe CGI has more potential for outperformance given its combination of growth and defensive attributes (e.g., recurring revenue and cash flow, long-term contracts),” Tse said.

Stock: Constellation Software (Constellation Software Stock Quote, Charts, News, Analysts, Financials TSX:CSU)

Rating: Outperform

12-month target price: $3,000.00

Projected return: 15 per cent

“All in, we continue to like CSU for its defensive attributes (recurring revenue and cash flow) and heightened growth profile given the accelerated pace of capital deployment. We reiterate our Outperform rating on CSU with a revised price target of C$3,000 (was C$2,750) to reflect an accelerated rate of capital deployment (as noted) above which increases the midterm growth rates in our three-staged DCF,” Tse wrote.

Stock: Converge Technology Solutions (Converge Technology Solutions Stock Quote, Charts, News, Analysts, Financials TSX:CTS)

Rating: Outperform

12-month target price: $7.00

Projected return: 92 per cent

“We’re expecting an in-line FQ1 relative to the consensus numbers and no major surprises for a quarter for which the Management has essentially offered some soft guidance. Given such an outlook, unless there is a major announcement on the earnings day, we think the stock has already priced in much of the expectations,” Shao said.

Stock: Copperleaf Technologies (Copperleaf Technologies Stock Quote, Charts, News, Analysts, Financials TSX:CPLF)

Rating: Outperform

12-month target price: $8.00

Projected return: 25 per cent

“We continue to believe Copperleaf has a highly scalable platform with a land- and-expand strategy within each vertical it targets. That platform underscores the Company’s market leadership with strong customer retention (zero churn rate),” Shaoe said.

Stock: Coveo (Coveo Stock Quote, Charts, News, Analysts, Financials TSX:CVO)

Rating: Outperform

12-month target price: $11.00

Projected return: 52 per cent

“If you’ve been following Coveo, you’ll likely know the Company has a solid record of driving significant ROI for its marquee enterprise customers (see our note “All the Right Moves” for examples). The reality is those examples are not uncommon based on our discussions with customers over the years. If anything, we’ve long believed the Coveo platform serves more value than what it’s priced for, which offers the potential for some optionality on pricing power in the future (i.e., value-based pricing),” Tse said.

Stock: D2L Inc (D2L Inc Stock Quote, Charts, News, Analysts, Financials TSX:DTOL)

Rating: Outperform

12-month target price: $9.00

Projected return: 11 per cent

“We like D2L for its defensive attributes. ~80 per cent of the Company’s revenue is from educational institutions such as K-12 schools and universities that have stable funding. Additionally, our channel checks suggest that despite most educational institutions today having already deployed eLearning platforms, it’s the market share gain (migration from on-premise solutions to a Cloud-native one such as D2L) that will drive the growth for this name,” Shao said.

Stock: Docebo (Docebo Stock Quote, Charts, News, Analysts, Financials NASDAQ:DCBO)

Rating: Outperform

12-month target price: US$60.00

Projected return: 59 per cent

“We see growing operating leverage at Docebo with outsized organic growth potential coming from: (1) new logo additions; (2) cross-/up-selling to existing customers; (3) larger deal sizes; and (4) geographic expansion,” Tse said.

Stock: EINC (EINC Stock Quote, Charts, News, Analysts, Financials TSX:EINC)

Rating: Sector Perform

12-month target price: $3.50 

Projected return: 6 per cent

“We maintain our Sector Perform – Speculative rating and SIB-based target price of C$3.50 which implies 1.3x EV/Sales on F2023E,”  Tse said.

Stock: Farmers Edge (Farmers Edge Stock Quote, Charts, News, Analysts, Financials TSX:FDGE)

Rating: Sector Perform

12-month target price: $0.25

Projected return: 25 per cent

“All in, lack of execution, high burn, continued IP dispute and growing questions around the underlying business model results in considerable risk in this name,” Tse wrote.

Stock: Kinaxis (Kinaxis Stock Quote, Charts, News, Analysts, Financials TSX:KXS)

Rating: Outperform

12-month target price: $250.00

Projected return: 40 per cent

“We continue to believe KXS’s valuation does not fully value a ‘normalized’ financial run rate looking ahead, particularly given what we estimate to be a market share of less than 10%. With our expectations for accelerating momentum over the next 12-24 months, we reiterate our Outperform rating,” Tse said.

Stock: Lightspeed Commerce (Lightspeed Commerce Stock Quote, Charts, News, Analysts, Financials NYSE:LSPD)

Rating: Outperform

12-month target price: US$20.00

Projected return: 48 per cent

“We reiterate our Outperform rating on LSPD; albeit, with a revised target price of US$20 (was US$30). The decline in our target is based on revisions to our midterm growth assumptions in our three-staged DCF in light of the refined target market,” Tse said.

Stock: mdf commerce (mdf commerce Stock Quote, Charts, News, Analysts, Financials TSX:MDF)

Rating: Sector Perform

12-month target price: $4.00

Projected return: 19 per cent

“Short term, we see potential for a slowdown in government procurement (given the current economic backdrop) could weigh (negatively) on Periscope’s transaction-based revenue (~33 per cent of Periscope’s total revenue) in the short term,” Tse said. “Longer term, we continue to believe that acquisition has potential to re-rate the stock (upwards) given the possible consolidation play in a disparate market.”

Stock: Nuvei (Nuvei Stock Quote, Charts, News, Analysts, Financials NASDAQ:NVEI)

Rating: Outperform

12-month target price: US$75.00

Projected return: 77 per cent

“We continue to believe Nuvei is uniquely positioned for growth in a market that’s undergoing a meaningful transformation care of the rise in digital services. Within that market, Nuvei remains a disruptive player with outsized growth relative to the sector,” said Tse. 

Stock: OpenText (OpenText Stock Quote, Charts, News, Analysts, Financials NASDAQ:OTEX)

Rating: Outperform

12-month target price: US$60.00

Projected return: 59 per cent

“We continue to believe OTEX offers compelling defensive attributes (recurring free cash flow generation). In addition, organic growth has the potential to drive an upward valuation re-rating in this name,” Tse said

Stock: Pivotree (Pivotree Stock Quote, Charts, News, Analysts, Financials TSXV:PVT)

Rating: Outperform

12-month target price: $8.00

Projected return: 132 per cent

“We’re expecting in-line to slightly better-than-expected FQ1 for a name whose business fundamentals have been steadily improving. After a successful turnaround in F2022 with profitability returning, the next focus will be on how the Company maintains healthy organic growth while expanding its margins to support growth initiatives amid the macro uncertainties. Based on the track record, we have confidence in PVT’s execution,” Shao said.

Stock: Q4 Inc (Q4 Inc Stock Quote, Charts, News, Analysts, Financials TSX:QFOR)

Rating: Outperform

12-month target price: $5.00

Projected return: 34 per cent

“Management has shifted focus to profitability (vs growth) in the short term with a plan to exit F23 at or above breakeven Adj. EBITDA. Key to that shift will be Management’s ability to drive gross margin expansion – targeting mid-70s gross margin exiting F23 which would imply a 1,000 bps+ expansion from Q4’22. We see risk for the revenue portion of the above strategy,” Tse said.

Stock: Real Matters (Real Matters Stock Quote, Charts, News, Analysts, Financials TSX:REAL)

Rating: Sector Perform

12-month target price: $5.00 

Projected return: 8 per cent

“While we continue to see long-term potential in REAL (continued market share gains) given its unique platform supporting some of the most prominent lenders in North America, we believe the stock will likely mark time given a challenging outlook for both origination and re-fi volumes,” Tse wrote.

Stock: Shopify (Shopify Stock Quote, Charts, News, Analysts, Financials NYSE:SHOP)

Rating: Outperform

12-month target price: US$60.00

Projected return: 25 per cent

“We’re expecting solid Q1 results for Shopify versus consensus estimates,” Tse said. “We see Y/Y GMV growth for Shopify accelerating this quarter c/o strong eCommerce activity in the U.S. with Mastercard data showing eCommerce sales up ~12 per cent Y/Y in Q1 keeping pace with the ~12% Y/Y increase in Q4, combined with a strong quarter of net merchant additions (more on that below). We also expect to see the Company’s take rate tick up as Shopify continues to roll out SFN (fulfillment) and increase adoption of other offerings such as Payments, Balance, Capital, Audiences, Markets and Tax.”

Stock: Softchoice (Softchoice Stock Quote, Charts, News, Analysts, Financials TSX:SFTC)

Rating: Outperform

12-month target price: $23.00

Projected return: 26 per cent

“We expect SFTC to report in-line results for a seasonally slow FQ1. If anything, we continue to like Softchoice for its high recurring revenue stream and asset-light business model, both of which could enable the Company to make quick pivots amid economic uncertainties. As such, we believe SFTC is on track to post a strong relative outperformance in 2023,” Shao wrote.

Stock: Tecsys (Tecsys Stock Quote, Charts, News, Analysts, Financials TSX:TCS)

Rating: Outperform

12-month target price: $50.00

Projected return: 90 per cent

“We’re expecting in-line to slightly better-than-expected results for TCS’ upcoming FQ4 (April), and we continue to see SaaS transition and the healthcare sector as low-hanging fruit for this name,” Shao said.

Stock: TELUS International (TELUS International Stock Quote, Charts, News, Analysts, Financials TSX:TIXT)

Rating: Outperform

12-month target price: US$35.00

Projected return: 72 per cent

“We continue to see TELUS International as a high-quality large cap service name in our coverage universe. While the market backdrop may provide for some short-term challenges, we continue to believe the Company is on an outsized growth trajectory,” Tse said.

Stock: Thinkific Labs (Thinkific Labs Stock Quote, Charts, News, Analysts, Financials TSX:THNC)

Rating: Outperform

12-month target price: $4.00

Projected return: 87 per cent

“While the macro backdrop continues to present challenges, Thinkific’s FQ4 results suggest the business may be stabilizing with KPI’s such as GMV and Customer count returning to Q/Q growth. In our view, a valuation of 0.6x EV/S suggests the market is pricing in that risk and the stock presents a compelling risk to reward profile,” Tse said.