Market Overview

ConveragOne's Profitability Profile Neutralized By Leverage, Vendor Concentration: Raymond James

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ConvergeOne Holdings Inc (NASDAQ: CVON) has an attractive margin profile, but the disruption experienced by the market in which the company is operating forced Raymond James to the sidelines.

The Analyst

Analyst Adam Tindle initiated coverage of ConvergeOne with a Market Perform rating.

The Thesis

ConvergeOne has an industry-leading position in the collaboration vertical, giving it an attractive margin profile relative to peers, as well as the opportunity to provide value-added services, leading to a less transactional/more recurring revenue stream, Tindle said in a Tuesday evening note.

Tindle noted the company's 30 percent gross margin is about two times that of companies such as CDW common stock (NASDAQ: CDW) and Insight Enterprises, Inc. (NASDAQ: NSIT), with adjusted EBITDA margin of 10 percent, also comparing favorably.

Although working capital metrics aren't robust, Tindle said integration of the many acquisitions the company has made may offer scope for improvement.

The analyst said the market is experiencing significant disruption, with legacy vendors struggling to grow, and attempting to emerge out of bankruptcy.

The company guided 2018 organic growth to mid-single digits, suggesting the softness in organic growth in temporary, Raymond James said.

Raymond James sees cash flow trends as the key, as the company would need cash in the near term for redeeming out-of-the-money outstanding warrants, possibly initiate a dividend, and for funding a Q1 2018 acquisition.

Price Action

ConvergeOne, which went public following its reverse merger with the Forum Merger Corp, began trading on Feb. 23. Since then, shares have added about 14 percent.

Related Links:

KeyBanc Says SaaS Investors Should Remain Bullish, But Selective

William Blair: ConvergeOne 'Well-Positioned' In Cloud, Collaboration And Security

Latest Ratings for CVON

DateFirmActionFromTo
Nov 2018DowngradesBuyNeutral
May 2018Initiates Coverage OnOverweight
Apr 2018Initiates Coverage OnMarket Perform

View More Analyst Ratings for CVON
View the Latest Analyst Ratings

Posted-In: Adam Tindle Raymond JamesAnalyst Color Initiation Analyst Ratings

 

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