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Constellation Software Inc CSU

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Stock XTSE Rating as of
CAD 3,791.07 +72.25 (1.94%)
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Company Report

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Launching Coverage of Constellation Software With Narrow Moat Rating and CAD 2,110 FVE

Emma Williams

We launch coverage of Constellation Software with a CAD 2,110 fair value estimate and narrow moat rating. The firm's business is akin to that of an investment company, with a specialization in asset-light, cash-generative vertical market software operators. Together, Constellation operates over 1,000 distinct software businesses in over 150 vertical markets globally, with no one business contributing materially to group earnings. We believe the firm enjoys high customer switching costs inherent in software and operates a remarkable M&A engine supported by brand assets and a vast proprietary database. However, at current prices, Constellation shares screen as highly overvalued on a risk-adjusted basis, trading at an eyewatering 76% premium to our valuation with a forward fiscal 2024 price to GAAP earnings ratio of 97 times.

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Price vs Fair Value

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CSU is trading at a 851% premium.
Price
CAD 3,791.07
Fair Value
CAD 7,325.00
Uncertainty
Medium
1-Star Price
CAD 2,231.10
5-Star Price
CAD 4,579.00
Economic Moat
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Capital Allocation
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Bulls Say, Bears Say

Bulls

We expect Constellation to continue to execute on the firm’s highly successful playbook of using excess cash to acquire cash rich businesses at reasonable valuations.

Bears

Constellation’s acquisition heavy model presents significant execution risk, and the firm may struggle to find attractive acquisition targets.

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Trading Information

Previous Close Price
CAD 3,718.82
Day Range
CAD 3,714.00–3,812.17
52-Week Range
CAD 2,585.25–3,856.00
Bid/Ask
CAD 3,774.33 / CAD 3,800.11
Market Cap
CAD 80.34 Bil
Volume/Avg
114,766 / 30,050

Key Statistics

Price/Earnings (Normalized)
43.25
Price/Sales
6.74
Dividend Yield (Trailing)
0.14%
Dividend Yield (Forward)
0.14%
Total Yield
0.14%

Company Profile

Constellation Software Inc is a Canada-based company that develops and customizes software's for public and private-sector markets. The firm acquires, manages, and builds vertical-specific businesses. The portfolio companies serve various markets including communications, credit unions, beverage distribution, tour operators, auto clubs, textiles and apparel, hospitality, and community care. The firm has operations in Canada; USA; UK/Europe and Other.
Sector
Technology
Industry
Software - Application
Stock Style Box
Large Growth
Total Number of Employees
56,000
Website
https://www.csisoftware.com

Competitors

Valuation

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Metric
CSU
CSCO
ROP
Price/Earnings (Normalized)
 43.2511.6230.94
Price/Book Value
 25.724.103.20
Price/Sales
 6.743.428.97
Price/Cash Flow
 32.7011.5827.71
Price/Earnings
CSU
CSCO
ROP

Financial Strength

Metric
CSU
CSCO
ROP
Quick Ratio
 0.791.100.40
Current Ratio
 0.921.370.50
Interest Coverage
 3.2233.7611.58
Quick Ratio
CSU
CSCO
ROP

Profitability

Metric
CSU
CSCO
ROP
Return on Assets (Normalized)
 2.13%15.60%5.56%
Return on Equity (Normalized)
 12.30%36.40%9.17%
Return on Invested Capital (Normalized)
 6.07%26.89%7.14%
Return on Assets
CSU
CSCO
ROP
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