Coveo is a takeout target, National Bank says

AI player Coveo (Coveo Stock Quote, Chart, News, Analysts, Financials TSX:CVO) is a “prime takeout target” says National Bank Financial.

In a comprehensive look to what 2024 might bring from the capital markets, National Bank Financial analysts Richard Tse and John Shao said its clear that AI isn’t going anywhere -but there are some caveats.

“From a technology theme perspective – AI was without a doubt the dominant theme in 2023. From a practical investment point of view, it was less so other than a small subset of names like Nvidia and Microsoft,” the analysts wrote. “We think the AI hype will continue in 2024 but like 2023, it likely won’t be broadly investable (yet) other than a small subset of names. Having just returned from CES 2024 where AI was likely the most dominant theme,
what’s clear is that broad adoption across enterprise is still limited to a small group. From what we heard, many enterprises are looking for their existing technology vendors to build those capabilities directly into their existing applications – thereby limiting the technical risk when it comes to deployment.”

Tse and Shao say they like Coveo and note that it is in great financial shape.

“Coveo has accelerated its operating model to profitability (targeting to burn just $5 mln in cash throughout F24 to reach cash flow breakeven exiting F25 – Coveo currently has approx. $168 mln in cash with no debt),” they noted. “We think that’s positive from a relative valuation standpoint given what we covered in this note as a shift in sentiment towards capital allocation. When it comes to the important growth metrics, we still see LTV/CAC of 4:1 and 106% Net Expansion Rate (111% ex. legacy Qubit-related attrition) as positive.”

The analysts says someone may come knocking on CVO’s door soon.

“We see Coveo as a prime takeout candidate for either a strategic buyer or PE firm,” they added.