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On Tuesday, RBC Capital Markets reiterated their Outperform rating on Constellation Software (ETR:SOWGn) (CSU:CN) (OTC: CNSWF), with a maintained price target of Cdn$5,700.00. RBC Capital’s analysis suggests that Constellation Software, along with its spin-offs Topicus.com and Lumine, are poised to remain some of the most resilient stocks through the first quarter. The company, currently valued at over $70 billion, has demonstrated strong momentum with a 22.76% return over the past year. According to InvestingPro analysis, while the stock is trading above its Fair Value, it maintains a "GREAT" financial health score, reflecting its robust market position. Despite the delay in closing several large acquisitions in the first quarter, the firm expects Constellation Software’s shares to show resilience, buoyed by positive investor sentiment.
The firm expressed confidence in Constellation Software’s mergers and acquisitions (M&A) strategy, describing it as counter-cyclical and more likely to deploy capital during times of economic stress. RBC Capital forecasts that the capital deployed for acquisitions in the second quarter will hit the highest level for any quarter in the past three years. This aggressive approach to M&A is seen as a key factor in maintaining investor confidence in the company’s growth strategy.
As for Topicus.com, another entity under Constellation Software’s umbrella, RBC Capital anticipates a strong quarterly report. With several large investments expected to close in the second quarter, Topicus.com is on track to reach a new annual record for capital deployment. This could further solidify the company’s position in the market and contribute to its financial growth. Investors should note that Constellation Software has maintained dividend payments for 19 consecutive years, with the next earnings report scheduled for May 12, 2025.
The analyst’s commentary underscores the belief that despite the hiccups in acquisition timelines, Constellation Software’s overall strategy and performance are not to be underestimated. The company’s ability to strategically navigate through economic downturns by leveraging its M&A model is highlighted as a distinctive strength.
In summary, RBC Capital Markets’ outlook for Constellation Software remains positive, with expectations of significant capital deployment in the near future and a sustained ability to thrive amidst challenging economic conditions. The firm’s maintained price target reflects this optimism and the anticipated resilience of the company’s stock.
In other recent news, Constellation Software’s fourth-quarter earnings for 2024 have been a focal point for analysts. TD Securities upgraded Constellation Software’s stock from Hold to Buy, citing the company’s resilient business model and the potential for strategic acquisitions amid economic uncertainties. This upgrade came after the company’s share price declined by about 12% despite meeting earnings expectations. Meanwhile, BMO Capital Markets raised its price target for Constellation Software to Cdn$5,500, maintaining an Outperform rating. BMO noted that the company’s fourth-quarter results were slightly below expectations in terms of revenue and EBITDA, largely due to the exclusion of spinoffs. The analyst from BMO highlighted that while mergers and acquisitions were robust in the quarter, activity has been subdued for the year so far, excluding spinoffs. BMO’s model projects an EBITDA growth of 15%-16% year-over-year for fiscal years 2025 and 2026, excluding spinoffs. Both analyst firms recognize the company’s strategy of expansion through acquisitions as a key driver for its long-term growth.
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