National Bank’s John Shao raised his Converge Technology Solutions Corp. target to $7 from $6 with an “outperform” rating, while Canaccord Genuity’s Robert Young increased his target to $6.75 from $6 with a “speculative buy” recommendation. The average is $6.93.
“Converge reported its FQ1 with key metrics in line with our forecasts and annual financial guidance reiterated,” said Mr. Shao. “While this quarter’s numbers suggest the Company continues to execute, the real surprise comes from the strong operating cash flow to bring the leverage ratio below the Company’s 1.0x target. In our view, the better-than-expected balance sheet coupled with interest savings could open the door for more optionality such as increased shareholder returns (through NCIB and dividends) and investments in products and sales channels. That said, at the time of writing, the stock was down 10% on the back of decent results. If anything, we consider today’s stock performance an anomaly unrelated to the Company’s fundamentals, and we expect the stock to regain ground as Converge seems to double down on share buybacks as a priority of capital allocation. All in, Q1 results support our investment thesis as we believe a consistent track record of execution and a simplified growth story will drive a re-rating to close the valuation gap.”