AI stock Coveo gets target raise from National Bank

National Bank Financial has bumped up its target price on Coveo Solutions (Coveo Solutions Stock Quote, Charts, News, Analysts, Financials TSX:CVO), where analyst Richard Tse said in a Tuesday report that a solid showing in its latest quarter and a path to profitability help make Coveo a winner of a stock.

Coveo Solutions, which provides applied artificial intelligence solutions through a Software as a Service (SaaS) platform for a wide range of industries, reported its first quarter fiscal 2024 financials on Tuesday for the period ended June 30, 2023. 

The company came in with total revenue up 15 per cent year-over-year to $30.5 million and a net loss of $7.0 million compared to a loss of $12.5 million a year earlier. (All figures in US dollars except where noted otherwise.)

“Our years of experience in developing applied AI solutions for large, complex enterprises have allowed us to bring to market what we believe is a transformative offering in generative AI,” said Louis Têtu, Chairman and CEO of Coveo, in a press release.

The $30.5 million topline was in-line with Tse’s forecast at $30.3 million, while adjusted operating income of negative $2.8 million was better than Tse’s call at $1.7 million. The consensus estimates were $30.2 million on revenue and negative $4.5 million for adjusted operating income.

Tse said management’s revised full fiscal 2024 guidance of $127.0-$129.0 million in revenue compared to his prior estimate at $128.6 million, while the company’s 2024 adjusted operating income forecast of negative $11.5-negative $13.5 million compared to Tse’s prior call of negative $14.5 million.

“Coveo reported solid FQ1 results that were ahead of our expectations with particular strength in Adjusted Operating Income,” Tse wrote. 

“In terms of the notable key performance indicators, they were solid with SaaS Subscription Revenue up 19 per cent year-over-year (+20 per cent) to $28.5 million and a Net Expansion Rate (NER) of 109 per cent (111 per cent excluding expected churn from standalone Qubit customers) within the Company’s target range of 105 per cent-115 per cent. Further, Coveo ended FQ1’24 with Current SaaS Remaining Performance Obligations (cRPO) of $94.4 million, up 12 per cent year-over-year,” he said.

Tse said Coveo should see outsized growth from the broadening commercial adoption of AI solutions and he divulged that there’s already “considerable” enterprise-level interest in Coveo’s Relevance Generative Answering that operates as a secure indexing relevance platform for large language models.

“If that weren’t enough, notably increasing engagement with enterprise partners like Adobe, SAP, and the Company’s long-standing partnership with Salesforce offers considerable validation for Coveo’s IP,” Tse said.

“Combine all the above with an aggressive push to profitability leads to our view that this stock will see a valuation re-rating higher,” he said.

With the update, Tse reiterated an “Outperform” rating on CVO and moved his target from C$11.00 to C$14.00, representing at press time a projected one-year return of 36.2 per cent.