CSU stock wins price target raise at National Bank

Following the company’s third quarter results, National Bank Financial analyst Richard Tse has raised his twelve-month price target on Constellation Software (Constellation Software Stock Quote, Chart, News, Analysts, Financials TSX:CSU).

On November 9, CSU reported its Q3, 2023 results. The company posted Net Income of $177-million on revenue of $2.13-billion, a topline that was 23 per cent better than the same period a year prior.

Tse gave his take on the quarterly results, which he described as “solid”.

“With respect to capital deployment (on acquisitions), Constellation deployed $923 mln in the quarter (+244% Y/Y) with an additional $129 mln deployed subsequent to quarter end for a total of $2.3 bln year to date,” Tse wrote. “That outsized Y/Y growth was largely driven by the $700 mln acquisition of Optimal Blue which closed on September 15, 2023. Importantly, Constellation has now surpassed our capital deployment target of $2.2 bln this year, ahead of schedule. That should have Constellation maintaining a +20% Y/Y revenue/earnings growth rate. In our view, the recent acquisitions of Optimal Blue (acquired for US $700 mln), Allscripts’ Healthcare Assets/Altera (acquired for US$700 mln) and WideOrbit (acquired for US$490 mln) is consistent with our view that the Company’s profile is facilitating larger opportunities. That said, those larger acquisitions are taking more time to fully scale into the Company’s operating model (we cover that later in this note). Even so, ROIC remains strong at 24%, based on our calculations.”

In a research update to clients November 10, Tse maintained his “Outperform” rating but raised his one-year price target on the stock from $3,250 to $3400, implying a return of 15.7 per cent at the time of publication.

Tse thinks CSU will post EBITDA of $2.18-billion on revenue of $8.31-billion in fiscal 2023. He expects those numbers will improve to EBITDA of $2.72-billion on a topline of$9.53-billion the following year.

“Bottom line, FQ3 results have CSU tracking in line with our investment thesis, the analyst concluded.