Following the company’s third quarter results, Eight Capital analyst Christian Sgro has raised his price target on D2L (D2L Stock Quote, Chart, News, Analysts, Financials TSX:DTOL).
On December 5, DTOL posted its Q3, 2023 results. The company reported an Adjusted EBITDA loss of $2.12-million on revenue of $46.1-million, a topline that was up eight per cent over the same period a year prior.
“It was a solid third quarter for the company as we demonstrated continued progress toward our balanced growth model and meaningfully improved operating leverage,” CEO John Baker said. “Subscription revenue growth accelerated again this quarter to 13 per cent, subscription gross profit rose 18 per cent and cash flow from operations increased to more than $20-million for the fiscal year to date. We have placed a heightened focus on operating efficiency and profitability over the past year, and at the same time we continue to make the right investments in our products and teams to win flagship customers in our core markets. Leading educational institutions and companies are choosing D2L as their partner to digitally transform and achieve their strategic learning goals, helping them solve more challenges and enabling us to build toward becoming the category leader.”
The analyst summarized the quarter.
“D2L’s FQ3 report met all expectations with a broad-based beat-and-raise,” he said. “The guide implies continued execution on subscription growth, GM expansion, and opex containment. As we look to C2024 (F2025) and D2L’s mid-term targets, we model performance at the lower end of management’s guided ranges. These conservative assumptions still suggest impressive margin expansion and an inexpensive software valuation, all following a year of execution and strong share price performance.”
In a research update to clients December 6, Sgro maintained his “Buy” rating DTOL but raised his one-year price target on the stock from $11.00 to $13.00.
The analyst thinks D2L will post Adjusted EBITDA of $7.2-million on revenue of $181.4-million in fiscal 2024. He expects those numbers will improve to Adjusted EBITDA of $22.5-million on a topline of $203.6-million the following year.
“We are maintaining our BUY rating and are increasing our target price to C$13.00 (from C$11.00) based on 19x C2024E EV/adj. EBITDA (from 15x) and our increased adj. EBITDA estimates,” Sgro concluded. “This increased valuation multiple rewards D2L’s execution and is more in-line with key academic learning peers. Our target equates to 12x C2025E EV/adj. EBITDA. Key risks to our target include IT spending slowdowns or intensifying competitive conditions.”