Oppenheimer On SPS Commerce: CovalentWorks Acquisition Will Be Accretive

SPS Commerce, Inc. SPSC announced the acquisition of CovelantWorks for about $23 million. The company expects the acquisition to be accretive to its 2019 revenue by about $4.5 million, according to Oppenheimer.

The Analyst

Oppenheimer’s Koji Ikeda maintains an Outperform rating on SPS Commerce with a $95 price target. (See the analyst's track record here.)

The Thesis

Following the integration of CovalentWorks into the SPS Commerce platform and the realization of synergies, the company expects the acquisition to supplement the adj. EBITDA by about $1 million in 2019 and about $2 million in 2020, Ikeda explained.

The acquisition of the cloud-based EDI software vendor is “primarily a consolidation play,” the analyst stated, explaining that CovalentWorks’ pricing model and technology platform are similar to that of SPS Commerce.

Ikeda expects SPS Commerce to be able to leverage its platform and scale up to gain acquisition synergies within the next 12 to 24 months. The deal does entail some execution risks, such as the integration taking longer than expected. This would push out the accretion from the deal.

Oppenheimer raised its total revenue estimate for SPS Commerce from $230.2 million to $274.7 million, while raising the PF EPS estimate from $1.96 to $1.99 and adj. EBITDA estimate from $61.2 million to $62.2 million.

Price Action

Shares of SPS Commerce were trading around $80.86 Wednesday afternoon.

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