On Thursday, Scotiabank updated its outlook on Converge Technology Solutions Corp (CTS (NYSE:CTS):CN) (OTC: CTSDF), increasing the price target to C$8.00 from the previous C$7.00. The firm retained its Sector Outperform rating for the company's stock. This adjustment comes after Converge Technology reported fourth-quarter results for fiscal year 2023, which surpassed expectations.
Converge Technology's Q4/23 performance showed a promising trend, with the guidance midpoint exceeding both the analyst's and the Street's estimates. Scotiabank's renewed confidence in Converge Technology's stock is also buoyed by the company's strategic priorities for fiscal year 2024, which were discussed during a fireside chat at Scotiabank's Annual TMT Conference. The management's focus on a new organic growth strategy was a key topic of this discussion.
The revised price target of C$8.00 reflects an inclusive analysis of Converge Technology's recent financial achievements and updated earnings projections. The analysis also takes into account the company's strategic shift towards organic growth, which has been evidenced by a 10.9% gross organic sales growth in Q4/23, leading to a 5.7% year-over-year increase in gross profit organic growth.
Converge Technology's recent success is attributed to several factors, including the implementation of stronger financial discipline and a targeted organic growth strategy. The company has seen increased engagement with both new and existing clients, particularly driven by the demand for digital transformation, cybersecurity, and advanced analytics solutions. This demand is prevalent among mid-market clients and large enterprises in need of high-performance computing for AI workloads.
The company's operational discipline is also highlighted as a factor contributing to its financial targets, including an aim for approximately 30% adjusted EBITDA as a percentage of gross profit and maintaining its adjusted EBITDA-to-CFO conversion target of 75%.
These measures are expected to support the company's profitability goals. Scotiabank's updated price target indicates a projected one-year rate of return of around 37% for Converge Technology's stock.
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