Analysts can't agree on MKS

On the heels of a record breaking financial quarter, Bay Street analysts can’t seem to agree on which way the shares of Wellington Financial Fund I portfolio co. MKS (MKX:TSX) are going. For the research team at GMP Securities, a US$4.7 million profit for the quarter is a reason to expect a $1.80/share stock to trade at $1.75 a year from now. In essence, despite the “hold” rating, they are saying shareholders should sell the stock. Over at Versant Partners, two great quarters in a row – despite CDN$ parity – is a reason to buy the stock before it goes to $2.50/share.

Here’s a snapshot of what GMP had to say:

“MKS remains a “show me” story in our view, following six of the past eight quarters being disappointing.

While we are encouraged by the strong performance in Q4/F08, quarterly results have been for the most part disappointing and erratic. MKX will continue to invest in sales and marketing, even though the market appears quite choppy and uncertain at the moment. As a result, we expect to see quarterly results in the future that are inconsistent.

We have increased our F09 estimates as follows:
– Revenue goes to $65.3 mm from $59.5 mm
– GAAP EPS fd increases to 7c from 6c
– Adjusted EPS fd goes to 13c from 12c

Our new C$1.75 target equates to a F09 P/S multiple of 1.4x (our prior C$1.40 target was based on a F09 P/S multiple of 1.2x). We reiterate our HOLD rating on MKX shares.”

And the other side of the story from Versant Partners:

“MKS had prepared the market for a clear record quarter with the May pre-announcement. Actual results were in line with these expectations. Based on these results, we should see investor confidence return to the story. Thus, we are maintaining our Buy recommendation and $2.50 target.

? In May, the company announced that it had signed its largest deal, a $5 million enterprisewide
license agreement. The company expected revenue to be approximately $21 million and income before taxes approximately to be $4 million.
? Actual results were in line: revenue was $21.2 million and income before taxes was $3.8 million. Adjusted EPS was $0.09, we were expecting $0.06.
? Excluding the $5 million deal, ALM licence revenue was $5.9 million, which is up 51.3% from $3.9 million in Q4/F07. This indicates that MKS had an excellent quarter even without this large deal.
? Our target of C$2.50 is based on 10x EV/F2010 EBITDA. This equates to 13x F2010 earnings.”

MRM
(disclosure – I own MKX)