1 TSX Tech Stock That Can Move Higher in 2020

Here’s why investors can consider Morneau Shepell stock for their portfolios.

Index funds

Image source: Getty Images

Back in December 2019, I had asked investors to stay away from Morneau Shepell (TSX:MSI) during a recession. It was driven by fear that this human resources-based tech company would experience lower demand in an economic downturn. However, once COVID-19 hit the world, it was time for a rethink. On March 18, 2020, I’d said MSI was a good buy since its tech prowess would hold it in good stead as working from home becomes the norm around the globe. The stock was trading at $28.90 then.

The price is now $31.10, an increase of almost 10% in less than two months. But can the tech stock move higher in the next few months and crush the broader market?

A look at Q1 results

Morneau Shepell recently reported its results for the first quarter of 2020, and the numbers are very good. Revenue increased by 18.7%, or $38.3 million to $243 million. Adjusted EBITDA increased by 5.8% to $47.3 million versus $44.7 million in the same period of 2019. The Mercer acquisition has played a major role in this boost. The company’s cash flow was $27.4 compared to $24.1 million in the prior-year period.

However, these numbers are not the reason why I am bullish about MSI. The positivity comes from this statement made by Grier Barrett Colter, CFO and executive VP of MSI during the earnings call last week that states:

“We’re continuing to pay our suppliers on time. We’re continuing to pay our people in full. We’ve made no cuts on that front. And we’re continuing to invest in CapEx as planned for the future. So we’ve made no change to our CapEx plan. And we continue to go full on those investments for the future.”

When a company says that it is going to continue with capital-expenditure plans and has not made any cutbacks, even during these unprecedented times, it gives investors a lot of confidence.

How the tech company is combating COVID-19

MSI’s tech-first approach has ensured that its sales funnel is strong. There are been certain aspects of its in-person business that were halted immediately, like in-person training, child support solutions, pension consulting, and economic onsite pension administration work. But it has more than made up for it with its tech solutions:

  • In March, the province of Manitoba came on board to use the AbilitiCBT, the company’s internet-based cognitive behavioural therapy program, to all residents over the age of 16 who suffer from anxiety caused due to the pandemic.
  • In May, Ontario followed suit with the iCBT program for residents over 16.
  • A Fortune 100 construction equipment manufacturer doubled the number of employees on the LifeWorks program for employee-assistance services.
  • A large client from the energy sector upgraded to the LifeWorks program and added employees from 22 countries in North America and the Caribbean to it.

The number of employees on MSI’s LifeWorks platform has grown from 2.2 million to 2.8 million. As companies across the world struggle to support their employees’ mental health in these trying times, MSI’s solutions seem to be the right fit. That said, the company has “entered into an amended credit facility agreement” where it obtained an additional $100 million of committed capacity for one year.

Morneau Shepell has made a slight adjustment to its 2020 EBITDA guidance. From its earlier target of 20.5%, the EBITDA estimate is now revised downward to 20%. When you add the forward dividend payout of 2.43%, you realize that this is a good stock to hold in the current environment.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool recommends MORNEAU SHEPELL INC. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.

More on Investing

money cash dividends
Stocks for Beginners

Where to Invest $10,000 in April 2024

If you've already created a diversified portfolio and are looking for more options from a windfall, here is where I…

Read more »

data analyze research
Investing

The Ultimate TSX Stock to Buy With $1,000 Right Now

Brookfield Asset Management (TSX:BAM) is one of the best Canadian stocks to buy for those looking to put capital to…

Read more »

young woman celebrating a victory while working with mobile phone in the office
Dividend Stocks

3 CRA Benefits Most Canadians Can Grab in 2024

You can save on taxes by claiming the dividend tax credit on Fortis Inc (TSX:FTS) shares.

Read more »

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

young woman celebrating a victory while working with mobile phone in the office
Investing

3 Roaring Stocks to Hold for the Next 20 Years

These top TSX stocks are excellent long-term buys, given their multi-year growth potential and solid underlying businesses.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

grow dividends
Investing

Here’s My Top 3 TSX Stocks to Buy Right Now

Even though the TSX has been rising, there are still some good bargains out there. Here are three top compounding…

Read more »

Target. Stand out from the crowd
Investing

Prediction: This Canadian Growth Stock Could Double by 2030

Alimentation Couche-Tard (TSX:ATD) is a top growth stock that could do well over the next six or so years.

Read more »