CTS stock still has big upside, Eight Capital says

Following the company’s third quarter results, Eight Capital analyst Christian Sgro says there is still good money to be made investing in Converge Technology Solutions (Converge Technology Solutions Stock Quote, Chart, News, Analysts, Financials TSX:CTS).

On November 14, CTS reported its Q3, 2023 results. The company reported Adjusted EBITDA of $41.3-million on revenue of $710.1-million, a topline that was up 38 per cent from the same period last year.

“The structural demand tailwinds of planning, implementing and monitoring complex technology projects, whether AI [artificial intelligence], cloud or cyber related, are driving a higher quality revenue mix,” CEO Shaun Maine said. “Converge continues to witness significant demand for higher-end products, services and solutions, which is crucial to positioning the company as a trusted adviser to our clients.”

The analyst summarized the quarter and mood around the company.

“Converge surprised the Street positively with a near $100M cash flow from operations this quarter,” he said. “Q4/23 guidance and an elevated backlog suggest to us that management has visibility into mid-term stability, despite an uncertain macro. We see Converge executing on cross-sell, cost-optimization, and its 2023 vision for a productive head-down organic growth year.”

In a research update to clients November 15 Sgro maintained his “Buy” rating and one-year price target of $7.00 on CTS.

The analyst thinks Converge will post Adjusted EBITDA of $171-million on revenue of $2.78-billion. He expects those numbers will improve to Adjusted EBITDA of $196-million on a topline of $2.89-billion the following year.

“We are maintaining our BUY rating and our target price of C$7.00 based on 8.5x 2024E EV/adj. EBITDA. Converge currently trades at 5.4x compared to IT solutions providers at 9.1x (Figure 5). Key risks to our target include IT spending slowdowns and broader macroeconomic conditions,” the analyst concluded