Shares of Constellation Software (CSU.TO) are destined for new all-time highs, say analysts, who are calling on the Canadian consolidator to continue turning capital at high rates in an uncertain macroeconomic environment.
Toronto-based Constellation reported third-quarter financial results after the closing bell on Friday, posting a higher year-over-year profit, exceeding analyst expectations. Sales for the three months ended September 30 fell short of estimates, while revenue rose nearly 20 percent year-over-year to $2.5 billion.
Unlike most publicly traded companies, Constellation does not host quarterly conference calls with management or provide guidance to investors.
The TSX-listed shares closed 2.24 percent higher at $4,454.39 on Monday, adding to a gain of more than 50 percent in the past 12 months. The stock hit an all-time intraday high of $4,476.50 per share in July. Over the past five years, shares have risen by more than 234 percent.
RBC Capital Markets analyst Paul Treiber says Constellation’s third-quarter performance was promising despite no major acquisitions being announced. The company has drawn comparisons to Warren Buffett’s Berkshire Hathaway (BRK-B) for its willingness to acquire dozens of specialty software companies since its founding in 1995.
“The third quarter demonstrates Constellation’s prowess in improving the profitability of acquired businesses, especially large spinoffs that may have struggled under previous owners,” Treiber wrote in a research note to clients on Monday. “Constellation shares appear well positioned in an uncertain macroeconomic environment.”
He raised his price target to $5,300 from $4,700 per share, while maintaining an “outperform” rating.
Treiber points to strong third-quarter contributions from Lumine Group (LMN.V), a software subsidiary of Constellation that spun off into a separate public entity last year.
He says Constellation will “likely continue to build capital at appropriate rates,” calling for the company to commit $2.5 billion to acquisitions in fiscal 2025, up from an estimated $1.6 billion this year.
Meanwhile, BMO Capital Markets analyst Thanos Moschopoulos raised his price target on Constellation stock to $4,800 last week ahead of the release of Q3 results, while maintaining an “outperform” rating.
Technology stocks have risen since it was confirmed last week that newly-elected US President Donald Trump has won a second term in the White House. Roundhill’s Magnificent Seven ETF (MAGS) hit record highs on Thursday and Friday.
In Canada, the iShares S&P/TSX Capped Information Technology Index ETF (XIT.TO) recently reached record levels. Constellation is the second-largest holding in the fund, behind e-commerce company Shopify (SHOP.TO)(SHOP).
