Following recent earnings; just initiated a position. GLTA
National Bank Financial analyst John Shao sees D2L Inc. “positioned for a valuation re-rating” in the wake of the Toronto-based education technology company reporting second-quarter financial results that displayed “solid execution in growing its global presence and more importantly solidifies margin expansion as an important catalyst in the second half of the fiscal year.
After the bell on Wednesday, D2L reported a “clean” quarter with both revenue and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) exceeding his expectations ($49.2-million and $4.2-million, respectively, versus $48.6-million and $2.8-million). The company also raised its annual guidance.
“All in all, we believe D2L is executing its balanced growth strategy well and is on track to maintain double-digit growth while expanding its profit margins,” said Mr. Shao. “If anything, FQ2 represents the kind of quarter with solid performance to potentially narrow the valuation gap relative to peers.”
“Despite the 20-per-cent year-to-date return, we’d note the stock is still trading at a discount to its LMS [learning management system] peers. As the Company captures more market share and grows its bottom line, that valuation gap should narrow. We continue to like D2L for its strong attributes such as a high recurring stream and a stable but robust customer base.”
Reiterating his “outperform” recommendation for its shares, Mr. Shao increased his target to $16 from $14.50. The average target is $15.56.
Other analysts making adjustments include:
* TD Securities’ Daniel Chan to $15 from $13 with a “buy” rating.
“D2L continues to execute well as product innovations are resonating with new and existing customers, in addition to cross-sell momentum with H5P,” he said. “We believe this sets the company up for growth acceleration, continued margin expansion, and improved FCF, all supporting multiple upside. Trading at 2.0 times forward sales, we believe the company remains undervalued.”
* Stifel’s Suthan Sukumar to $17 from $16 with a “buy” rating.
“RFP activity industry wide remains muted amidst macro uncertainty but D2L is seeing high win rates sustain and healthy pipeline build as they leverage a differentiated product-platform offering to grow market share gains vs. peers, while improving operating leverage fuels greater margin expansion and cash flows, allowing the company to comfortably double-down down on key growth drivers – product innovation, international penetration, and corporate learning – which drive continued prospects for upside,” he said. “Net/net - we believe D2L appears well-positioned to drive transformation of the future of learning/work and we continue to see a potential outlook for durable double-digit revenue growth and stronger EBITDA/FCF expansion, which suggests a rule-of-40 profile may be closer than appears.”
* RBC’s Paul Treiber to $16 from $15 with an “outperform” rating.
“Profitability in D2L’s fiscal Q2 (July quarter) reached the 2nd highest level in the company’s history and was better than expected. Revised FY25 guidance calls for further margin expansion. While Q2 revenue was largely in line with RBC/ consensus, visibility to sustained low-double-digit growth is high, given D2L’s share gains, the recovering EdTech market, and new products. Maintain Outperform, given D2L’s discounted valuation and our forecast for adj. EPS to grow 51 per cent year-over-year from CY24 to CY25,” said Mr. Treiber.
* BMO’s Thanos Moschopoulos to $14.50 from $14 with a “market perform” rating.
“We remain Market Perform on D2L and have modestly raised our estimates following Q4/25 results — which were in line on revenue and a beat on EBITDA,” said Mr. Moschopoulos. “D2L modestly raised FY2025 guidance, reflecting the recent H5P acquisition (for which it’s already starting to capture some revenue synergies). While we prefer other stocks in our coverage universe, we see more upside than downside to the stock given D2L’s valuation, strong competitive position in higher-ed, and ramping profitability.”
* Canaccord Genuity’s Doug Taylor to $14.50 from $13.50 with a “buy” rating.