Among the many initiations, one that stands out is the Outperform and $19 target at RBC Capital. That is the highest price target we see so far this morning, about 19% above the current share price. RBC is bullish on PSDO for a number of reasons, including its low-to-mid teen EPS growth potential and a valuation (~12x P/E) that it finds very attractive. Other notable bullish initiations include an Overweight and $18 target at Morgan Stanley, and, an Outperform and $18 target at Credit Suisse. The only initiation not in the Buy/Overweight/Outperform category is Goldman Sach's Neutral rating.
For those unfamiliar with PSDO, the company is an information technology services company offering consulting, strategy, design, and implementation across three main areas: digital infrastructure (76% of revenue), cloud (15%), and security (9%). The company has increasingly focused on the cloud and security verticals due to the strong growth and demand for these technologies. It expects its business mix to continue shifting towards these markets.
Some examples of PSDO's services include advanced networking, Internet of Things (IoT), data center modernization, hybrid and multi-cloud, cyber risk management, enterprise mobility, and management of data from cameras, wearables, and sensors. Broadly speaking, the increasing potential and complexity of new, emerging technologies are creating more demand for these services.
The company uses a "Go-to-Market" approach, meaning, it strives to have the flexibility and resources to adapt to evolving technologies. As of June 30, 2016, it employed over 500 direct sales force employees based in over 60 countries across the U.S. With over 7,000 customers, across a variety of industries, its base is diverse. In fact, in FY16, only 19% of its revenue came from its top 25 customers and no industry vertical represented more than 20% of its revenue. Its total sales outside the U.S. is only 2%, which does represent a significant opportunity for the company.
PSDO went public on March 10 and it really stumbled out of the gate. Its 16.7 million share IPO priced at $14, the low end of the $14-$16 expected range. It then opened for trading underwater at $13.50. However, after that sluggish start, buyers began to step in. The stock has been strong over the past few weeks, now trading 14% higher than its IPO price.
Taking a quick look at the financials, PSDO' revenue for the 6-months ended December 31, 2016 was up a modest 6% y/y to $1.5 billion. The increase in revenue resulted from a higher proportion of engineering and consulting services as part of it solutions, as well as from the Netech Acquisition, partly offset by changes in the timing of client engagements at the end of the periods. Breaking it down by vertical, digital infrastructure revenue grew 2.3%, cloud revenue grew 28.1%, and security revenue grew by 5.0%.
Gross margin is pretty thin, but, has remained quite stable. Total gross margin increased 40 basis points to 20.0% for the six months ended December 31, 2016, up from 19.6% of revenue for the six months ended December 31, 2015. Despite the bump in revenue and gross margin, operating income fell by 13% y/y to $57.8 million. The cause is mostly tied to the 17% rise in Selling expenses and the 18% increase in general and administrative expense.
Note: It has not yet issued any quarterly results, nor is there a confirmed date for its first report.