Constellation Hits High
Constellation Software (CSU.TO) provides a range of specific vertical market software solutions. Constellation's strategy is to acquire a flagship company within an industry, then to consolidate around this firm, with the goal of operating the business for the long term. The company's "acquire, manage, and build" strategy aims to acquire software solutions that solve critical customer issues within a specific industry.
[PostStockWidget stock_valuation="" pricetype="live" manual_date="Dec. 21, 2012, 2:04pm GMT" symbolcodes="'CSU.TO'" symbolprices="280" div_align="right"]
In May 2014, we identified a low valuation at $242.75 and had an initial target of $280. Today, we would exit for the following reasons.
First, earnings estimates revised downward for 2015 and 2016 (in May, were $15.26 and $18.89 respectively); Second, current price is higher than our initial target despite lower forecast earnings; Third, recent correction signals that we may have seen the high-water mark for many stocks.
We believe that the current level has put the stock into high valuation territory and we now recommend looking elsewhere for value.
HIGH VALUATION CONSTELLATION SOFTWARE, $284.25 (CSU-T $285.00) FULL POSITION
TOTAL RETURN (including dividends) +17.9%
PURPLE CHIPS TARGET: $284.00 POSITION SIZE: FULL (5.0) P/E: 22.4X DIV: $4.448 (1.56%) MKT CAP: $6B Debt: $400M RETURN ON CAPITAL: N/A EARNINGS YIELD: 2.2% 5 YR EPS Growth rate*:28% P/E/G Ratio: 0.8 EPS: $12.72 2015 EST.: $14.83 2016 EST.: $18.22
*Blended growth rate= 2/3 historical (5yrs), 1/3 forward.
