Descartes Systems is a Buy, says Laurentian

The stock has been an impressive climber over the past 12 months, but investors can expect a little more from Descartes Systems Group (Descartes Systems Group  Stock Quote, Charts, News, Analysts, Financials NASDAQ:DSG), according to Laurentian Bank Securities analyst Nick Agostino, who in a Tuesday update to clients profiled the company ahead of quarterly earnings next week.

Descartes is a global leader in SaaS-based, logistics-intensive solutions for businesses to optimize and automate processes such as planning, routing, scheduling, tracking, invoicing, auditing and payments. 

The company’s share price was down as low as $57 last May but is up around the $76 mark now, with a high of $90 reached in late 2021. (All figures in US dollars.)

Ahead of Descartes’ Q1 fiscal 2024 (ended April), which is due on May 31 after market close, Agostino is estimating $135.6 million in revenue for a year-over-year increase of 16.5 per cent, which he said would be above the company’s historical growth range of 10-15 per cent. Agostino said DSG will be getting a boost from its recent acquisition of last-mile carrier solutions platform GroundCloud but that organic growth will likely factor in strongly at about eight per cent year-over-year growth compared to the company’s historical range of 4-6 per cent.

On EBITDA, Agostino is calling for $57.9 million compared to $51.2 million a year earlier.

“We are modelling sales/EBITDA just above consensus supported by ongoing favourable tailwinds noted below, however, we note that freight activity was slightly down MoM/YoY as per Cass Shipments data,” Agostino said.

Agostino said he’ll be looking for management commentary on a number of issues, including Descartes’ growth prospects in key markets, the financial health of North American carriers in light of the pandemic and ongoing supply issues, an update on recent acquisitions of Localz and GroundCloud and comments on the company’s M&A pipeline and prospects.

“Per the FQ4 call, three drivers continue to support DSG’s sales performance including: 1) Data content, driven by screening and the Ukraine war; 2) Transportation Management Service (TMS), driven by demand for real time data and MacroPoint; and 3) E-commerce, with volume activity in-line with seasonality. Of note, since the FQ4 call on March 2, the US$ appreciated against the £, € and C$, and based on sales weightings, we estimate a potential sales headwind of ~1% or ~US$2M along with a slight negative impact on EBITDA given natural hedges,” Agostino wrote.

Agostino reiterated a “Buy” rating and $85 target on DSG, which at press time represented a projected return of 8.4 per cent.