BMO lifts Constellation Software target to Cdn$5,500

On Monday, BMO Capital Markets adjusted its outlook on Constellation Software (ETR:SOWGn) (CSU:CN) (OTC: CNSWF), raising the price target to Cdn$5,500 from the previous Cdn$4,900. The firm maintained its Outperform rating for the company’s stock. With a market capitalization of $70.5 billion and trading near its 52-week high, InvestingPro analysis indicates the stock is currently fairly valued based on its proprietary Fair Value model. The revision follows Constellation Software’s fourth-quarter results for 2024, which, according to BMO Capital analyst Thanos Moschopoulos, were slightly below expectations in terms of revenue and EBITDA. The company reported robust financial metrics, with EBITDA reaching $1.97 billion and revenue growing 19.73% over the last twelve months. InvestingPro data shows the company maintains a "GREAT" financial health score, with 12 additional exclusive insights available to subscribers.

Moschopoulos noted that the minor underperformance was due to figures from Constellation Software excluding spinoffs, while Topicus.com Inc. (TOI) and LifeWorks Inc. (LMN), both spinoffs from Constellation, surpassed the estimates set for them within the larger company’s financial model. Despite a robust quarter for mergers and acquisitions, activity has been muted year-to-date, excluding the spinoff companies.

The analyst’s consolidated EBITDA estimates for Constellation Software remain largely unchanged, with an increase in projections for TOI being offset by a 1.5% reduction in the forecasted EBITDA for fiscal year 2025 for Constellation Software excluding spinoffs. The estimates for LMN are expected to stay consistent.

The new price target of Cdn$5,500 is based on a 26.5 times multiple of the expected enterprise value to EBITDA for the year 2026, excluding the spinoff companies. BMO’s model suggests an anticipated year-over-year EBITDA growth of 15%-16% for Constellation Software excluding spinoffs for both the fiscal years 2025 and 2026. The stock currently trades at a P/E ratio of 96.46, reflecting investors’ high growth expectations. For deeper insights into Constellation Software’s valuation metrics and growth potential, visit InvestingPro, where you can access comprehensive financial analysis and exclusive trading ideas.

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