Coveo Solutions wins target raise from Eight Capital

Recently white-hot tech stock Coveo Solutions (Coveo Solutions Stock Quote, Charts, News, Analysts, Financials TSX:CVO) has nearly doubled in value over the past couple of months. But investors shouldn’t be thinking the party’s over — according to Eight Capital analyst Adhir Kadve, there’s more upside to be had in this AI-enabled business solutions name. 

After reviewing the latest quarterly numbers from the company, Kadve reiterated a “Buy” rating on Coveo in a Wednesday report.

Coveo, a global provider of artificial intelligence-powered solutions for e-commerce, customer service, website and workplace applications, issued its first quarter fiscal 2024 financials on Tuesday. The company reported SaaS Subscription Revenue up 19 per cent year-over-year to $28.5 million and an adjusted operating loss of $2.8 million compared to a loss of $7.5 million a year earlier.

“While the macroeconomic environment continues to impact new bookings, we are encouraged by the early demand for Coveo Relevance Generative Answering and the pipeline generated through our partnership with SAP,” the company said in a press release.

Q1 revenue of $30.5 million, which was up 15 per cent year-over-year, was higher than management’s previously issued guidance of $29.9-$30.4 million. Kadve said the topline was in-line with expectations, where the analyst had forecasted $30.1 million and the consensus call was $30.4 million. The adjusted operating loss of $2.8 million was better than Kadve’s estimate at negative $4.2 million and the Street’s at negative $4.1 million.

Kadve said he likes the setup for Coveo heading into the rest of 2023 and beyond. He noted that management has said it will need less than $15 million in cash from operations for the business to become cash flow positive.

“We are maintaining our Buy rating but increasing our target to $13.50/share (from $12.00/share). Coveo currently trades at 4.6x C24E EV/Sales versus a peer group of SaaS-based Data and Analytics platforms that trade at 7.1x and Canadian SaaS peers at 5.6x. Our target implies 6.5x C24E EV/Sales (versus the previous 5.0x),” Kadve wrote.

The analyst’s new estimates are calling for full fiscal 2024 revenue of $128.0 million and adjusted operating income of negative $11.5 million. For fiscal 2025, he is forecasting $153.2 million in revenue and negative $.4 million in adjusted operating income.

Coveo shares are currently up about 22 per cent this year. At the time of publication, Kadve’s new $13.50 target represented a projected one-year return of 31 per cent.