Cubic Corp. Is The 'Top Gun' In Payments, William Blair Says In Bullish Initiation

Cubic Corporation CUB is an industry leader in public transit payment platforms and already serves more than 20 of the largest regional public transit systems in the world, with more expected to come, according to William Blair.

The Analyst

William Blair's Louie DiPalma initiated coverage of Cubic Corp. with an Outperform rating.

The Thesis

Cubic's cloud-based payments software and hard systems make it the "top gun" in public transit payments, and the company should benefit from an estimated $9.5-billion total addressable market, DiPalma said in the initiation note.

Cities like London offer users of its transit system the ability to pay from their smartphone or with near-field, communications-linked bank cards, and many more transit systems are expected to follow suit in the coming years, the analyst said.

The growth in the market should allow the company to achieve its revenue target of $2.1 billion in fiscal 2020, up from $1.1 billion in 2017, DiPalma said. This represents a "step-change" acceleration from the 3.5 percent seen in 2015-2017 to a new 22-percent compounded annual growth rate through 2020, the analyst said.

Cubic's C4ISR — command, control, communications, computers, intelligence, surveillance and reconnaissance — business should benefit from higher level of defense spending, DiPalma said. The company solidified this business through five different acquisitions of video analytics software and networking companies from 2014 through 2018 to fully take advantage of "exploding government demand" for motion video surveillance, he said.

Continued growth from transit deals and growing demand for the C4ISR bundle, coupled with operating leverage, could generate more than 30-percent upside in Cube in the next two years, according to William Blair.