In a report titled A Solid Defense Is The Best Offense, CIBC World Markets analyst Stephanie Price warned the calendar third quarter normally is “seasonally slower” for the majority of Canadian software and services companies, however she emphasized the Street is forecasting an 8-per-cent year-over-year jump in EBITDA.
“At the beginning of the year, many companies highlighted an expectation for a back-half weighted year,” she said. “As we approach the end of calendar 2024, we have yet to see a material improvement in the demand environment. At this point, the weaker environment appears mostly baked in, with a number of our SaaS names reducing F2024 guidance with Q2 results. Across our coverage, we are broadly in line with Street estimates for Q3 and will be looking for commentary on the F2025 outlook with results. We continue to prefer the defensive names in this environment and highlight GIB.A, DSGX and CSU as top picks.”
Ms. Price adjusted her targets for seven stocks in her coverage universe. They are:
- Converge Technology Solutions Corp. (“neutral”) to $5 from $4.50. The average is $6.25.
- Descartes Systems Group Inc. (“outperformer”) to US$116 from US$108. Average: US$107.46.
- Docebo Inc. ( “outperformer”) to US$55 from US$52. Average: US$57.17.
- Kinaxis Inc. ( “neutral”) to $175 from $152. Average: $192.67.
- Softchoice Corp. (“neutral”) to $22 from $19.50. Average: $22.13.
- Telus International Inc. ( “neutral”) to US$4.50 from US$5. Average: US$5.49.
- Thomson Reuters Corp. (“neutral”) to US$164 from US$156. Average: US$166.09.
“Heading into Q2 reporting, we favour defensive software names and highlight Constellation, Descartes and CGI as our top picks,” she said. “CSU has strong recurring revenue (70 per cent), and we expect the company to remain active on M&A given its strong balance sheet. At Descartes, we expect the company to benefit from recent M&A spending and continue to foresee upside from an eventual freight recovery. We recently upgraded CGI and see the company as well positioned in the resilient government vertical, with upside from AI opportunities as well as M&A. We expect solid U.S. government bookings from CGI ahead of the government’s fiscal year-end and the upcoming election.”