Stifel Resumes CoverageNot sure if his target may have been a typo (ie. $62) or this analyst is really looking for more than a triple from here. But either way, it's up. GLTA
Stifel analyst Suthan Sukumar resumed coverage of Canada’s technology sector with a long-term bullish view, seeing fundamentals “as strong as ever.”
“We acknowledge that tech multiples remain robust, alongside an uncertain market backdrop with risk of an inflationary and rising rate environment, compounded by new variant/lockdown fears,” he said in a research report. “That said, market valuations are heightened across the board, so we view a bet against tech as a bet against growth, and believe there is still under-appreciation for the durability of secular trends in the sector. Thus, while valuations may be volatile in the near term, we think the ‘rate of change’ is a more important factor for interest rates, and believe growth will ultimately outperform.”
“In 2021, there are now significantly more companies within the S&P 500 trading ABOVE 10 times Sales than at the Tech Bubble peak nearly 20 years ago. However, we would argue that this time is different. This is not a Technology Bubble, it is an EVERYTHING BUBBLE. Of the equities now trading above 10-times revenue, fewer than half are traditional Tech. So while, like everything else, Technology valuations are high relative to historical averages, to be negative on Technology equities at this time is to be negative on risk assets of all kinds. That said, as we have entered a new phase of the current inflationary shock, there is risk that Central Banks are about to take the punch bowl away. In that scenario, Technology equities may be vulnerable to valuation contraction, but likely no more than broader risky assets.”
Mr. Sukumar thinks we are entering a “trillion dollar digital transformation shaping the next decade of key themes and trends in enterprise and consumer tech.”
“While 2020 and 2021 saw strong growth on the pull-forward of demand post the pandemic, we believe 2022 will highlight the permanency and durability of these demand trends as tech spend continues to accelerate across key areas of digitization, including cloud, cyber, supply chains, and hybrid work,” he said. “This has been reflected in our industry conversations, with companies highlighting greater pipeline visibility, sales productivity, and overall confidence in operational execution ahead. As such, we have conviction that fundamentals in the sector will remain resilient, given strong, sustaining demand, fueling strong structural growth for secular winners, which could lead to potential for continued outperformance vs. guidance/expectations ahead.”
With that view, he resumed coverage of Enterprise Software and Services stocks on Friday.
Tecsys Inc. with a “buy” rating and $162 target. Average:$65.40.
“Tecsys is a SaaS-based supply chain management platform that is setting up for an accelerated growth outlook on the back of pent-up investment in supply chain digitization,” he said. “We like the company’s market leadership in the underpenetrated healthcare and complex distribution end-verticals, and see a compelling valuation re-rate opportunity as the company executes on its SaaS model transition, which will drive greater revenue visibility and margin expansion. We see an attractive risk/reward with shares trading at 5 times calendar 2023 estimates Sales, vs. software peers at 10 times.”