Constellation Software Earnings: Slightly Lower Acquisition Spending, but Growth Still Strong

We are increasing our fair value estimate for narrow-moat Constellation Software to CAD 3,260 from CAD 2,110 as we transfer coverage and update our projections. We lowered our cost of equity to 7.5% from 9%, given Constellation's extremely stable and steady growth engine plus the broad diversification of its revenue across hundreds of businesses. We also increased the length of time we think the firm will keep growing with above-WACC returns to 20 years from 15. We still view shares as overvalued, trading at a 34% premium to our updated fair value estimate as of this writing.