TCS stock still has double-digit upside, Echelon says

Its third quarter results are in the books and Echelon Capital Markets analyst Amr Ezzat is still upbeat about Tecsys (Tecsys Stock Quote, Chart, News, Analysts, Financials TSX:TCS).

On February 29, TCS reported its Q3, 2024 results. The company posted Adjusted EBITDA of $2.6-million on revenue of $43.8-million.

“Our third quarter represents another record quarter led by SaaS revenue and included the addition of five new logos, three new hospital networks, ongoing customer SaaS migrations, and the biggest bookings quarter of the fiscal year so far,” CEO Peter Brereton said. “Our SaaS margins continue to expand and the resulting impact on our overall margin profile is becoming evident. We are seeing activity across all key verticals and through all commercial channels, with rising demand and pipeline expansion. This solid financial performance is bolstered by a market that is showing no signs of slowing down.”

Ezzat says it is all systems go for TCS.

“Tecsys reported FQ324 results yesterday evening, which saw revenues come in slightly ahead of estimates,” he wrote. “While headline EBITDA exceeded expectations at $2.6M, after adjusting for the positive impact of FX, we estimate EBITDA would have been approximately $1.7M (Street: $2.1M, EWP: $1.2M). The most significant takeaways for us this quarter are (i) there is an upward bias to next year’s EBITDA guidance of 8-9% due to the announced workforce reduction by the Company (anticipated annual cost savings of $4.6M), and (ii) activity levels are showing no sign of abating, providing confidence in sustained strong SaaS growth. The cornerstone of our investment thesis lies in the fact that the revenue stream experiencing the fastest growth (SaaS) also boasts the highest margins, ultimately paving the way for aggressive earnings growth. Our DCF-derived target price is unchanged.”

In a research update to clients March 1, the analyst maintained his “Buy” rating and one-year price target of $45.00 on TCS, implying a return of 24.5 per cent at the time of publication.

Ezzat thinks TCS will post EBITDA of $10.4-million on revenue of $173.1-million in fiscal 2024. He expects those numbers will improve to EBITDA of $17.1-million on a topline of $192.1-million in fiscal 2025.