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RBC Maintains The Descartes Systems Group's Outperform Rating and US$126.00 Price Target

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RBC Capital Markets maintained its outperform rating on the shares of The Descartes Systems Group (DSG.TO, DSGX) and its price target of US$126.00 on Thursday, and provided a first-quarter preview for the company.

Descartes is reporting Q1/ FY27 on June 3, said RBC.

RBC expects Descartes to report Q1 "moderately above consensus", driven by organic growth momentum against conservative consensus estimates.

"We expect Q1 revenue up 15% Y/Y to (US)$195MM, above consensus at (US)$191MM," said RBC.

The upside compared to consensus reflects sustained organic growth momentum, along with overly conservative consensus estimates, it added.

"Due to operating leverage, we forecast Q1 adj. EBITDA up faster than revenue (19% Y/Y) to (US)$89MM, modestly above consensus at (US)$87MM and ahead of Descartes's long-term target of 10-15% growth," said RBC. "Similarly, we forecast GAAP EPS of (US)$0.54, slightly above consensus at (US)$0.52."

RBC expects organic growth to stem from upselling, market share gains, e-commerce momentum, and increased adoption of customs filing solutions, despite a continued mixed trade environment.

"Our Q1 revenue estimate equates to 118.6% of baseline, in line with Descartes's TTM average and down from 119.7% last quarter," RBC said. "We believe consensus at 116.6% of baseline is overly conservative and likely assumes 50 bps Q/Q organic growth deceleration."

With likely continued organic growth and contribution from the US$28 million Idelic acquisition, RBC expects Q2 baseline to exceed consensus as well.

"We believe Descartes may provide Q2 baseline of (US)$169MM revenue and (US)$66MM adj. EBITDA, implying Q2 actuals of (US)$200MM (11% Y/Y) and (US)$92MM adj. EBITDA (15% Y/Y), slightly above consensus at (US)$199MM and (US)$91MM," RBC added.

RBC sees Descartes's valuation as "compelling", given RBC's forecast for 15% adj. EBITDA CAGR and 18% FCF/ share CAGR over the next 2 years.

Its price target is unchanged and remains based on 25x CY27e EV/EBITDA, RBC stated.

"We see attractive risk-reward on the shares, given valuation near 10- year lows," added RBC. "Maintain Outperform."

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