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On Friday, TD Securities analysts raised their outlook on Constellation Software (ETR:SOWGn) (CSU:CN) (OTC: CNSWF), upgrading the stock rating from Hold to Buy and increasing the price target to Cdn$5,550.00 from the previous Cdn$5,250.00. The upgrade follows a notable decline in the company's share price since the release of their fourth-quarter earnings for 2024, which were reported a month ago on March 11, 2025. According to InvestingPro data, the company generated impressive revenue of $10.07 billion in the last twelve months, with a healthy 19.7% growth rate.
The analysts at TD Securities have attributed their positive reassessment of Constellation Software's stock to its recent performance, which saw the shares drop approximately 12% from a near all-time high. This decrease came even though the company's fourth-quarter results met expectations. The analysts highlighted the company's resilient business model as a key factor in their decision to upgrade the rating. InvestingPro analysis supports this view, with the company receiving a "GREAT" overall Financial Health score and maintaining dividend payments for 19 consecutive years.
In their commentary, TD Securities emphasized Constellation Software's defensive position amidst concerns about potential economic headwinds. The firm's analysts pointed out that the company is likely to face lower risks from tariff and trade war challenges. They also noted the possibility of Constellation Software encountering increased opportunities for attractive mergers and acquisitions in the event of an economic downturn. The company's strong financial position is evident in its robust EBITDA of $1.97 billion and significant free cash flow of $2.13 billion in the last twelve months, as reported by InvestingPro, which has identified 12 additional investment tips for this stock.
The analyst's statement provided further insight into the rationale behind the upgrade: "We are upgrading CSU to BUY (from Hold), given the pullback in the stock and its defensive business model." They elaborated on the company's robustness against external pressures and the prospect of growth through strategic acquisitions.
Constellation Software, recognized for its specialization in acquiring, managing, and building vertical market software businesses, has demonstrated a consistent approach to expansion through acquisitions. This strategy has been a cornerstone of the company's growth and is a factor considered by analysts when evaluating the company's long-term prospects.
In other recent news, Constellation Software's fourth-quarter results for 2024 were slightly below expectations in terms of revenue and EBITDA, according to BMO Capital Markets. Despite this, BMO Capital Markets raised its price target for Constellation Software to Cdn$5,500 from Cdn$4,900, maintaining its Outperform rating. The adjustment follows a robust quarter for mergers and acquisitions, although activity has been muted year-to-date when excluding the company's spinoffs. Analyst Thanos Moschopoulos noted that the underperformance was due to figures excluding spinoffs, while spinoffs like Topicus.com Inc. and LifeWorks Inc. exceeded their estimates. BMO's consolidated EBITDA estimates for Constellation Software remain largely unchanged, with a slight reduction in the forecast for the fiscal year 2025 excluding spinoffs. However, projections for Topicus.com Inc. have increased, while LifeWorks Inc. estimates are expected to remain consistent. The new price target is based on a 26.5 times multiple of the expected enterprise value to EBITDA for 2026, excluding spinoffs. BMO anticipates a year-over-year EBITDA growth of 15%-16% for Constellation Software excluding spinoffs for both fiscal years 2025 and 2026.
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