AI Advances And Partnerships Will Expand Customer Use Cases

Key Takeaways

• New AI advancements and strategic partnerships enhance product offerings and market coverage, driving potential revenue growth.
  
• Public cloud migration reduces costs and improves flexibility, boosting net margins and ARR growth.
  
• Leadership transition and foreign exchange volatility contribute to uncertainty, impacting revenue and earnings, while AI innovation may boost future performance despite initial lag.

Catalysts

Provides cloud-based subscription software for supply chain operations in the United States, Europe, Asia, and Canada.

• Kinaxis has enhanced its go-to-market strategy, added new talent, and focused on high engagement with customers, which is expected to drive ARR growth and revenue expansion.
  
• The introduction of new AI techniques and developments in the Maestro platform, including supply chain data fabric and GenAI features, are anticipated to boost revenue by enhancing product offerings and expanding customer use cases.
  
• Strategic partnerships with companies like Accenture and Google are expected to improve market coverage and delivery capacity, potentially contributing to revenue growth.
  
• The migration to public cloud infrastructure from private data centers is projected to improve net margins by reducing operating costs and optimizing delivery flexibility.
  
• The company's focus on existing customer expansion opportunities and new product launches is likely to drive sustained ARR growth and earnings improvements in the coming years.

Kinaxis Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Kinaxis's revenue will grow by 13.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.0% today to 14.1% in 3 years time.
• Analysts expect earnings to reach $99.1 million (and earnings per share of $3.06) by about May 2028, up from $56.0 thousand today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 46.5x on those 2028 earnings, down from 67649.6x today. This future PE is greater than the current PE for the CA Software industry at 32.2x.
• Analysts expect the number of shares outstanding to decline by 0.93% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.28%, as per the Simply Wall St company report.

Kinaxis Future Earnings Per Share Growth

Risks

• Kinaxis's financial performance is subject to foreign exchange volatility, which has impacted both ARR and RPO balances negatively, potentially affecting overall revenue recognition and future earnings.
  
• The company incurred a significant one-time tax expense related to the transfer of market rights within its corporate group, which impacted net margins and signals tax planning complexities that could recur.
  
• While the launch of new AI enhancements like Maestro chat and Agentic AI is anticipated to generate future revenue, the initial rollout will not significantly impact the SaaS growth in the immediate term, suggesting a lag before earnings reflect these innovations.
  
• Professional services revenue growth slowed considerably, affected by the push to channel work towards partners and seasonal fluctuations, creating uncertainty in segments of revenue and overall profitability.
  
• The ongoing search for a new CEO and the interim nature of the current leadership may introduce uncertainty and execution risk in strategic planning and market expansion efforts, potentially affecting long-term revenue and earnings stability.

Valuation

• The analysts have a consensus price target of CA$191.371 for Kinaxis based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$223.88, and the most bearish reporting a price target of just CA$154.76.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $704.7 million, earnings will come to $99.1 million, and it would be trading on a PE ratio of 46.5x, assuming you use a discount rate of 7.3%.
• Given the current share price of CA$186.28, the analyst price target of CA$191.37 is 2.7% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.