Shares of Constellation Software Inc. (TSX: CSU) dropped more than five per cent after the company announced on Sept. 25 that founder and chief executive Mark Leonard resigned from his position for health reasons after 30 years on the job. After an Oct. 1 conference call with new president and chief executive Mark Miller to discuss the leadership transition, BMO Capital Markets analyst Thanos Moschopoulos said in a note that while Leonard is “irreplaceable,” the selloff was “overdone” and that Constellation’s “well established playbook, bench strength and decentralized structure should allow it to sustain strong growth and exceptional returns on capital.” As the company’s chief operating officer since 2001, Miller is “extremely capable” of taking on his new role, National Bank of Canada analyst Richard Tse said in a note. “That said, we also believe part of Constellation’s historical premium valuation was due to Mark Leonard. And in our view, we think the market will need to see continued execution before re-rewarding the stock with that historical premium,” Tse wrote. Analyst David Kwan from TD Cowen said in a note that Constellation has an earnings premium compared with its peer group average. Combined with the company’s valuation nearing a 10-year low, “the risk/reward looks compelling,” Kwan wrote. Several analysts maintained their target prices for Constellation after the Oct. 1 call, including National Bank ($4,500), TD ($5,700) and BMO ($5,400). The company’s stock has rebounded since the Sept. 25 drop and closed at $4,029 on Friday, though shares are down more than nine per cent year-to-date.
