Ahead of the company’s upcoming quarterly results, RBC analyst Paul Treiber thinks there is money to be made on Descartes Systems Group (Descartes Systems Group Stock Quote, Chart, News, Analysts, Financials NASDAQ:DSGX).
On May 29, DSGX will report its Q1, 2024 results. Treiber thinks the company will post EBITDA of (US) $67.8-million on revenue of $154-million.
The analyst says DSFX is not the cheapest stock around, but is one that deserves a premium valuation.
“Descartes has deployed US$151-million capital on two acquisitions (OCR, ASD) in FY25, up from $144-million deployed in all of FY24,” said Mr. Treiber. “While Descartes is paying slightly more than its historical average (estimate 15 times vs. 14 times), we believe Descartes is likely to realize strong cost synergies on the acquisitions, which will likely drive IRRs to levels similar or better than previous acquisitions. We are updating our financial estimates to reflect the acquisitions. As a result, our adj. EBITDA estimates move to $286-million for FY25 and $327-million FY26, up from $278-million and $316-million previously.
As reported by the Globe and Mail Treiber May 24 maintained his “Outperform” rating on the stock but raised his price target from (US) $110.00 to $115.00.
“Descartes is trading at 29 times FTM [forward 12-month] EV/ EBITDA, below supply chain and fleet management peers (36 times), though above Canadian software consolidators at 17 times,” the analyst wrote. “On an NTM [next 12-month] EV/S basis, Descartes is trading at 13 times, in line with supply chain and fleet management peers (13 times), though above Canadian software consolidators at 5 times. We believe Descartes is likely to increasingly trade closer to supply chain and fleet management peers as the company’s market cap increases and organic growth stabilizes in the high-single digit range.”
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