Core Viewpoint - Descartes Systems (DSGX) has faced significant selling pressure, resulting in a 13.8% decline in stock price over the past four weeks, but analysts anticipate improved earnings in the near future [1] Group 1: Technical Analysis - The Relative Strength Index (RSI) is utilized to determine if a stock is oversold, with a reading below 30 indicating oversold conditions [2] - DSGX has an RSI reading of 24.09, suggesting that the heavy selling may be nearing exhaustion, potentially leading to a price rebound [5] Group 2: Fundamental Analysis - Analysts have raised earnings estimates for DSGX by 22.2% over the last 30 days, indicating a positive trend that typically correlates with price appreciation [7] - DSGX holds a Zacks Rank 1 (Strong Buy), placing it in the top 5% of over 4,000 ranked stocks based on earnings estimate revisions and EPS surprises, further supporting the potential for a turnaround [8]

Summary of Conference Call Notes Industry Overview - **Industry**: Application Software, specifically focusing on Software as a Service (SaaS) in North America - **2025 Performance**: Application SaaS underperformed due to muted revenue growth, limited upward estimate revisions, and multiple compression driven by AI-related concerns. The valuation discount on application SaaS relative to broader software increased to approximately 37% from 20% a year ago [3][7][21]. Key Insights - **AI Concerns**: Peak AI fears were noted in 2025, leading to a shift in investor sentiment. Companies emphasized competitive advantages such as proprietary data and large installed bases but struggled to improve investor confidence [3][23]. - **Bull Case for 2026**: The bull case hinges on application software becoming the primary delivery mechanism for AI capabilities, potentially expanding the total addressable market and improving growth trajectories. However, the lack of clear growth inflection in 2025 left many vendors perceived as disrupted by AI [3][23][35]. - **CIO Survey Insights**: A survey indicated that 19% of CIOs operationalizing AI/ML technologies view application vendors as primary partners, an increase from 13% in the previous quarter. This suggests a shift in perception towards application software as a vehicle for AI functionalities [26][29]. Investment Recommendations - **Selective Approach**: A selective investment strategy is recommended, favoring companies with strong positioning in the "AI Success Framework" and idiosyncratic growth stories. Preferred companies include HUBS, KVYO, WIX, AMPL, BL, DSGX, and NAVN [2][7][52]. - **Price Target Adjustments**: Price targets for several companies were updated, reflecting changes in growth outlooks and market conditions. For example, HUBS was adjusted to $577, while KVYO was set at $42 [5][54]. Risks and Considerations - **AI Risks**: The report outlines three core areas of AI-related risks: DIY risk, start-up risk, and seat-based model risk. Evidence suggests that fears regarding these risks may be overstated, but ongoing monitoring is necessary [24][26][27]. - **Cyclical Headwinds**: The optimization cycle that began in 2022 is largely digested, with stabilization in key performance indicators like ARR and billings growth. However, broad-based positive spending revisions remain absent, necessitating a cautious approach [35][36]. - **2026 Spending Growth**: Software is expected to see modest growth in spending, projected at 3.8%, compared to declines in hardware and communications sectors. This indicates a relatively healthier positioning for software in IT spending plans [43][44]. Conclusion - **Outlook for 2026**: The outlook for application SaaS in 2026 is cautiously optimistic, with potential for improved sentiment as AI risks are reassessed and growth trajectories begin to stabilize. However, the absence of broad-based positive revisions in spending necessitates a selective investment approach [2][35][52].

Core View - Barclays has a positive outlook on the 2026 prospects for U.S. software stocks, citing stable macroeconomic conditions and IT spending, low valuation levels, and current market disfavor towards the sector [1] - The analysts expect significant revenue contributions from AI in application software and infrastructure software, which will help shift market sentiment [1] Software Stock Ratings and Target Price Adjustments - Barclays adjusted ratings and target prices for several software stocks, highlighting key changes: - CoreWeave: Hold, target price $90 - Datadog: Buy, target price $215 - Dynatrace: Buy, target price $62 - Elastic: Buy, target price $107 - Five9: Buy, target price $29 - HubSpot: Buy, target price $575 - Klaviyo: Buy, target price $43 - Microsoft: Buy, target price $610 - Monday.com: Buy, target price $202 - Paycom Software: Hold, target price $185 - Commerce.com: Reduce, target price $3 - Paylocity: Hold, target price $164 - Similarweb: Buy, target price $12 - Sprout: Buy, target price $26 - Workday: Buy, target price $280 - ZoomInfo Technologies: Hold, target price $12 - Appian: Reduce, target price $34 - Lightspeed Commerce: Hold, target price $14 - DigitalOcean: Buy, target price $63 - JFrog: Buy, target price $70 - MongoDB: Buy, target price $480 - Salesforce: Buy, target price $338 - Teradata: Reduce, target price $27 - UiPath: Hold, target price $16 [1] Cartesian Logistics Systems Group - Barclays upgraded Cartesian Logistics Systems Group from Hold to Buy, raising the target price from $106 to $105, citing a positive turning point in their Q3 2026 performance [2] - Analysts believe the company has overcome its most challenging period, with organic growth rates accelerating from a low point earlier in the fiscal year [3] Snowflake - Barclays downgraded Snowflake from Buy to Hold, lowering the target price from $290 to $250, while still recognizing it as a top software asset with strong revenue growth [2] - The analysts noted limited future upside potential despite a 42% stock price increase in 2025 [2] DoubleVerify - Barclays downgraded DoubleVerify from Buy to Hold, maintaining a target price of $12, citing significant underperformance compared to the software industry [4] - Analysts expressed concerns over the sustainability of revenue growth following a decline in Q3 growth [4] GitLab - Barclays downgraded GitLab from Hold to Reduce, lowering the target price from $42 to $34, attributing the downgrade to execution issues and a challenging macro environment [5] - Analysts noted that recent adjustments may take time to yield results, with expectations of underperformance in the current year [5]

Core Insights - Descartes Systems Group has successfully modernized Supergasbras' logistics operations through its cloud-based route planning and fleet management solution, enhancing efficiency in the distribution of liquefied petroleum gas (LPG) across Brazil [1][2] Group 1: Company Operations - Supergasbras operates one of the largest LPG distribution networks in Brazil, utilizing over 400 trucks and a workforce of more than 900 people to transport over 400,000 tons of LPG monthly [1] - The implementation of Descartes' solution has led to faster, safer, and more transparent route planning, resulting in fewer stockouts, lower operational costs, and improved delivery reliability, particularly in regions with fluctuating demand [2][3] - The solution provides real-time visibility of tank levels, consumption rates, and customer demand, allowing for automatic route planning based on up-to-date data [2] Group 2: Technological Integration - Descartes' solution integrates seamlessly with Supergasbras' existing enterprise systems, including sales and financial applications, replacing outdated processes that relied on plain text file exchanges [3] - The integration with the Faton billing application enables drivers to manage the entire delivery process within a single environment, reducing errors and administrative workload [3] Group 3: Strategic Impact - The project signifies a new phase in Supergasbras' digital transformation, enhancing control over distribution operations and demonstrating that logistics innovation extends beyond technology to include collaboration and understanding of operational workflows [4]

Core Insights - Descartes Systems Group focuses on providing logistics and supply chain management software to help organizations reduce costs, improve margins, and enhance customer service in a complex global trade environment [3][6]. Company Background - Founded in 1981 and listed in 1999, Descartes is headquartered in Ontario, Canada, with over 1500 employees [3]. - The company operates primarily on a SaaS subscription model, with some clients on perpetual licenses, and has a significant portion of revenue tied to shipment volumes [6]. Market Challenges - Logistics-intensive organizations face increasing complexities due to manual processes, regulatory requirements, and the rise of e-commerce, which demands faster and more flexible fulfillment [3][6]. - The need for real-time data sharing among logistics partners is critical, as traditional fragmented solutions are inadequate [3]. Sales and Growth Strategy - Descartes has a Global Logistics Network (GLN) that facilitates real-time data flow among trading partners, serving as a competitive advantage [6]. - The company has over 25,000 customers across 160+ countries, with significant revenue contributions from the USA (63%) and EMEA (26%) [6]. - Acquisitions have been a key growth driver, with 31 acquisitions totaling $1.04 billion since 2014 [6]. Financial Performance - Revenue has compounded at 15.7% annually from FY2010 to FY2022, with free cash flow (FCF) compounding at 22% [11]. - As of Q3 FY23, revenues were $121.5 million, up 12% year-over-year, with 91% of revenue coming from service [11]. - The company is net cash positive with $229 million in cash and has access to $350 million in credit facilities [11]. Management and Compensation - The management team includes CEO Edward J. Ryan, who has been with the company since 2000, and CFO Allan Brett, who joined in 2014 [11]. - Compensation for executives is structured to align with long-term performance, with significant portions tied to company performance metrics [11]. Valuation - As of February 21, 2023, Descartes has a market cap of $6.4 billion and a trailing FCF of $182 million, resulting in a PFCF ratio of approximately 35 [13]. - The company does not currently pay dividends or buy back shares, indicating a focus on reinvesting cash flows for growth [13].

Core Viewpoint - Descartes Systems (DSGX) shows potential as a strong investment opportunity due to significant upward revisions in earnings estimates, indicating an improving earnings outlook and potential for continued stock price appreciation [1][2]. Current-Quarter Estimate Revisions - For the current quarter, Descartes Systems is projected to earn $0.55 per share, reflecting a year-over-year increase of +27.9% [6]. - Over the past 30 days, two earnings estimates have been revised upward, with no negative revisions, leading to a 6.86% increase in the Zacks Consensus Estimate [6]. Current-Year Estimate Revisions - For the full year, the expected earnings per share is $1.99, representing a year-over-year growth of +21.3% [7]. - Similar to the current quarter, two estimates have been raised in the last month with no negative revisions, resulting in a 10.28% increase in the consensus estimate [8]. Favorable Zacks Rank - The positive revisions in earnings estimates have earned Descartes Systems a Zacks Rank of 2 (Buy), indicating strong investment potential [9]. - Stocks rated Zacks Rank 1 (Strong Buy) and 2 (Buy) have historically outperformed the S&P 500 [9]. Bottom Line - The strong estimate revisions have led to a 10.5% increase in the stock price over the past four weeks, suggesting further upside potential for investors [10].

Core Insights - Descartes Systems Group is a leading provider of SaaS-based logistics and supply chain management solutions, focusing on operational efficiency and regulatory compliance for logistics-intensive businesses globally [1][6] - The company operates a modular software-as-a-service business model, offering cloud-based solutions for routing, transportation management, customs compliance, and e-commerce warehouse management [2][11] - Descartes has experienced a decline in stock price, down 26% year-over-year, underperforming the S&P 500 by 46 percentage points [2] Company Performance - Dixon Mitchell Investment Counsel increased its stake in Descartes by acquiring 255,154 additional shares, raising its total position to 339,370 shares valued at approximately $31.96 million as of September 30, 2025 [3][4] - The company reported a sales growth of 14% annually over the last decade, with recent quarterly sales and net income up 11% and 20%, respectively [6][7] - Currently trading at a more reasonable valuation of 34 times free cash flow, Descartes is viewed as a top-tier compounder [8] Market Position - Descartes' suite of logistics and supply chain solutions is increasingly essential for various sectors, including retail, parcel delivery, airlines, and freight brokers [6] - The company has a competitive edge due to its scale, recurring revenue model, and comprehensive suite of interoperable applications [1] - Despite recent stock price challenges, the underlying business remains strong, indicating potential for recovery and growth [7]

Company Overview - The Descartes Systems Group Inc. is a Canadian technology company operating in the logistics sector, focusing on global trade, transportation, and government regulations [1] - The company offers a cloud-based system designed to enhance logistics operations [1] Investment Focus - The analysis primarily targets small- to mid-cap companies, which are often overlooked by investors, while also occasionally reviewing large-cap companies for a broader market perspective [1]

Core Insights - The Descartes Systems Group Inc. is a Canadian technology company specializing in logistics, focusing on global trade, transportation, and government regulations [1] - The company offers a cloud-based system designed to enhance efficiency in logistics operations [1] Company Overview - Descartes operates at the intersection of global trade and transportation, providing solutions that help businesses navigate complex regulatory environments [1] - The company primarily targets small- to mid-cap companies, which are often overlooked by investors, while also analyzing larger companies for a comprehensive market perspective [1]

Industry Overview - The Zacks Computer Software industry is poised for solid growth as global businesses accelerate digital transformation efforts, with cloud migration and Software-as-a-Service (SaaS) models providing recurring revenue visibility for vendors [1][2] - The global software market is projected to grow at a CAGR of 11.3% from 2025 to 2030, reaching approximately $1,397.31 billion [2] - The industry is characterized by companies providing software applications related to AI, cloud computing, cybersecurity, and various enterprise solutions [4] Trends Influencing the Industry - Higher spending on AI and cloud computing is expected, with businesses adopting hybrid and multi-cloud environments for flexibility and scalability [5][6] - The demand for AI-powered software tools for automation, personalization, and predictive analytics is increasing, indicating a shift towards generative AI as a defining force in software evolution [6] - Cybersecurity software demand is rising due to the need for securing cloud platforms amid increasing cyberattacks [8] Economic Context - Global macroeconomic conditions and supply-chain dynamics present challenges, with inflation potentially affecting spending across small and medium-sized businesses [9] - Worldwide IT spending is projected to reach $6.08 trillion in 2026, reflecting a 9.8% increase from 2025 levels, with software and services spending expected to rise by 15.2% in 2026 [7] Industry Performance - The Zacks Computer Software industry has underperformed compared to the broader Zacks Computer and Technology sector and the S&P 500 Index over the past year, gaining only 3.3% compared to 16.3% and 26.9% respectively [12] - The industry is currently trading at a forward 12-month P/E ratio of 29.28X, higher than the S&P 500's 23.59X and the sector's 29.03X [15] Company Highlights - **Simulations Plus (SLP)**: Reported a 6% year-over-year revenue decline to $17.5 million in Q4 fiscal 2025, but full-year revenues grew 13% to $79.2 million. Management expects low single-digit revenue growth for fiscal 2026 [19][20][21] - **Synopsys (SNPS)**: Anticipates revenues between $7.03-$7.06 billion for fiscal 2025, up from previous estimates. The company is facing challenges in its Design IP business but benefits from demand for emulation and prototyping solutions [27][28] - **Descartes Systems Group Inc. (DSGX)**: Reported Q3 fiscal 2026 revenues of $187.7 million, an 11% year-over-year increase. The company recently acquired Finale, Inc. for $39.2 million to enhance its cloud-based solutions [29][30][32]