Constellation Software (CSU.TO) shares are destined for fresh record highs, say analysts calling for the Canadian consolidator to keep turning over capital at high rates in an uncertain macroeconomic environment.
Toronto-based Constellation reported third-quarter financial results after the closing bell on Friday, booking a higher profit on an annualized basis, topping analyst expectations. Revenue for the three months ended Sept. 30 fell shy of estimates, while rising nearly 20 per cent year-over-year to US$2.5 billion.
Unlike most publicly traded companies, Constellation does not host quarterly conference calls with management, or issue guidance to investors.
TSX-listed shares added 1.45 per cent as at 11:06 a.m. ET on Monday, adding to a more than 50 per cent gain in the last 12 months. The stock hit a record intraday high of $4,476.50 per share in July. Over the past five years, shares have increased more than 234 per cent.
RBC Capital Markets analyst Paul Treiber says Constellation’s performance in the third quarter was promising, despite no large acquisitions being announced. The company has drawn comparisons to Warren Buffett’s Berkshire Hathaway (BRK-B) due to its appetite for acquiring scores of specialized software companies since its founding in 1995.
“Q3 shows Constellation’s prowess at improving the profitability of acquired businesses, particularly large carve-outs that may have struggled under previous owners,” Treiber wrote in a research note to clients on Monday. “Constellation’s shares appear well-positioned in an uncertain macroeconomic environment.”
He boosted his price target from $4,700 per share to $5,300, while maintaining an “outperform” rating.
Treiber highlights strong contributions in the third quarter from Lumine Group (LMN.V), a software subsidiary business Constellation spun out into a separate public entity last year.
He says Constellation is “likely to continue compounding capital at right rates,” calling for the company to deploy $2.5 billion on acquisitions in fiscal 2025, up from an estimated $1.6 billion last year.
Meanwhile, BMO Capital Markets analyst Thanos Moschopoulos raised his price target on Constellation shares to $4,800 last week prior to the release of the Q3 results, while keeping an “outperform” rating.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
Download the Yahoo Finance app, available for Apple and Android.