Constellation Software remains a “premium operator”, National Bank says

Even with a cautious market, Constellation Software’s (Constellation Software Stock Quote, Chart, News, Analysts, Financials TSX:CSU) steady deal flow and strong balance sheet are keeping it firmly on National Bank’s buy list.

Constellation received an “Outperform” rating and a C$5,500 12-month price target in an April 24 industry note.

National Bank Financial Markets analyst Richard Tse said in an April 24 industry note that he expects Constellation’s upcoming first-quarter earnings, scheduled for May 12, 2025, to align with expectations. He highlighted the company’s disciplined approach to capital deployment despite falling slightly short of its 2024 investment target. He said Constellation’s strong liquidity and healthy balance sheet position it well to pursue a growing pipeline of acquisition opportunities.

In the April 24 note, Tse said Constellation is maintaining a measured pace on acquisitions but remains set up for steady growth.

“Looking ahead, we’re forecasting FY25 capital deployment of US$2.5-billion, implying a conservative growth rate of around 15% vs. 20% previously,” he wrote. “We also adjusted our acquisition valuation multiple assumption to 1.7x EV/Sales (from 1.5x) given what we believe to be an increasingly competitive environment. Notably, Constellation has deployed US$357-million up to early March at the time of its Q4’24 release, which represents 14% of our US$2.5-billion FY25 target.”

Tse forecasts that Constellation will generate (US) $711-million in adjusted EBITDA on $2.76-billion in revenue in fiscal 2025. Based on current estimates, he expects those numbers to remain steady into fiscal 2026.

“Constellation remains a premium operator among our coverage with strong defensive attributes in a healthy balance sheet and strong free cash flow generation, alongside spinoff optionality,” he said.