Economists and market observers expect a second rate cut this month and probably a few more until the end of 2024. Easing, if not moderating, inflation is the cue for the Bank of Canada to lower interest rates. The TSX hardly moved during the first cut in early June, although the index has risen 5.45% from a month ago.
Canada’s primary stock market is up 8.26% year to date, including a record high of 22,995.40 on July 16. While a rotation from tech stocks is currently happening, the sector’s growth prospects remain high due to the AI hype and the rate-cutting cycle.
One stock that should benefit from the central bank’s rate reduction campaign is Evertz Technologies (TSX:ET). The $974.9 million global technology operating in the communication equipment industry is in a strong position with potential upside in the near future.
Industry leader
Evertz Technologies manufactures broadcast equipment and provides end-to-end broadcast solutions (hardware and software) from content creation and distribution to delivery. The company caters to clients in the television broadcast, telecommunications and new media industries.
In addition to North America (U.S. and Canada), Evertz has a global presence with international and regional partners. Because of early and extensive research and development investments, the Burlington-based firm is now the leading supplier of IP and IT-based production, workflow and distribution systems to the broadcast industry.
Record revenues
Evertz markets and sells its products and services through direct and indirect sales channels, focusing on large and complex end-user customers. Its revenue comes from selling software, equipment, and technology solutions. The U.S. and Canadian markets contribute approximately 70-80% of the total revenue.
In fiscal 2024 (12 months ended April 30, 2024), revenue reached a record $514.6 million, representing a 13% year-over-year increase. International revenues climbed 50% to $176.6 million compared to fiscal 2023, while net earnings rose 10% to $71 million from a year ago. Notably, cash generated by operations jumped 169% to $144.7 million versus the previous fiscal year.
Evertz has consistently delivered profits in the last three fiscal years (an annual average of $68.65 million). Management maintains an upbeat revenue outlook for fiscal 2025 within the cloud-native technology and service business, where orders and backlog are growing.
As of May 31, 2024, the purchase order backlog was over $295 million. Evertz will continue its R&D initiatives, primarily investing in new product developments, which has always been a key focus.
Rare gem
Very few high-growth stocks are dividend payers, but Evertz Technologies is a rare gem. Suppose you invest today. The share price is $12.80, while the dividend offer is 6.09%. The dividend payout frequency is quarterly, and the company has paid quarterly dividends within the last 10 years.
Performance-wise, the tech stock is down 5.42% year to date, although market analysts have a 12-month average price target of $17.17 (+34.14% upside). You’d be buying on weakness and could earn two ways: price appreciation and dividends.
Investment takeaway
Lower interest rates are a tailwind for tech stocks. However, Evertz Technologies has inherent competitive advantages that ensure business growth. The tech leader is unmatched in industry experience, boasts superior solutions, and has a track record of sustainable success.
