Constellation Software Earnings: Results Meet Expectations, Look For Uptick in Acquisition Spending

Narrow-moat-rated Constellation Software reported solid fourth-quarter earnings, with full-year earnings per share coming in slightly ahead of our expectations. Revenue, expenses, and operating profit were all roughly as we expected. As we update our projections, we are increasing our fair value estimate to CAD 3,550 from CAD 3,260, partially due to the time value of money, and partially due to some minor changes in revenue and margin assumptions. We still view shares as overvalued, trading at roughly a 32% premium to our updated fair value. We believe eventually the current acquisition based growth strategy will reach some scaling limits, at which time the market may not give Constellation such a high multiple and come more in line with our own view, although admittedly we think this slow down is still likely years away.