Constellation Earnings: Higher-Than-Expected Acquisition Revenue Drives Solid Performance

Key Morningstar Metrics for Constellation Software

• Fair Value Estimate
  : C$3,500.00
• Morningstar Rating
  : ★★★
• Morningstar Economic Moat Rating
  : Narrow
• Morningstar Uncertainty Rating
  : High

What We Thought of Constellation Software’s Earnings

Constellation Software CSU reported second-quarter revenue of USD 3.33 billion, up 17%, just shy of FactSet consensus of USD 3.36 billion, with organic growth coming in at 3%. The firm completed several acquisitions for an aggregate cash consideration of USD 893 million.

Why it matters: Second-quarter results were largely solid but weighed down by one-off items that are expected to normalize in coming quarters. Constellation’s compounding engine ploughed ahead, with large deals making up a significant share of acquisition spending in the period.

• Acquisition-driven growth and capital deployed both came in higher than our expectations as Constellation closed large deals like DerbySoft and TouchBistro. We estimate an average acquisition multiple of 1.7 times sales for the quarter, higher than the historical average of 1.0 to 1.3 times sales.
• Management acknowledged DerbySoft’s elevated acquisition multiple, but they pointed to solid growth and profitability, alongside continued hurdle rate discipline. We see the quarter’s elevated implied multiple as skewed by such lumpy large-deal spending and anticipate normalization in quarters ahead.

The bottom line: We maintain our fair value estimate for narrow-moat Constellation Software at C$3,500 per share as we raise our free cash flow available to shareholders estimates, offset by slightly higher acquisition multiples. Shares were down 5% intraday Aug. 12 on the consensus miss and appear fairly valued.

Coming up: Management does not provide financial guidance, but we expect full-year 2026 revenue of USD 13.8 billion, implying 18.5% year-over-year growth, with organic growth of about 4.0%. We model acquisition spending to be north of USD 2 billion.

Between the lines: Management commentary signaled more intentional capital allocation toward larger, more successful verticals in Constellation’s portfolio, citing the firm’s spun-off Lumine group as a model for sharper strategic execution.