Pegasystems Inc. (NASDAQ:PEGA) stock fell 0.17% (As on July 10, 11:16:29 AM UTC-4, Source: Google Finance) after Wedbush upgraded the company to Outperform from Neutral with a price target of $65, up from $50. The firm cites incrementally better field checks and calls Pegasystems “an under the radar AI story that is now starting to form.”
In his recently published note, Ives said that he thinks Pegasystems’ business is getting ready to turn a corner thanks to a widening foundation of subscription-based recurring revenue and improving margins from its cloud-based services making up a greater portion of overall sales. In particular, Ives sees generative artificial intelligence (AI) driving increased business for Pegasystems Cloud. He also thinks that Pegasystems’ effort to appeal a large monetary judgement against it will bear fruit. In May 2022, a Virginia jury found that the company had misappropriated trade secrets from its competitor Appian and ordered the company to pay more than $2 billion in damages. Ives anticipates that the actual amount Pegasystems winds up paying to Appian will be much lower than that initial judgment.
Ives expects that Pegasystems will wind up posting adjusted earnings per share of $1.51 on sales of $1.39 billion this year. While his revenue forecast is slightly below the $1.4 billion sales target that management laid out with the fourth-quarter report it published in February, his earnings forecast topped the company’s guidance for per-share earnings of $1.50.
Looking ahead to next year, the analyst anticipates adjusted earnings of $2.10 per share on revenue of $1.53 billion. Based on that target for revenue growth of roughly 10% and earnings growth of roughly 39%, he is expecting substantial margin improvement.
On the other hand, for its first quarter ended March 31, Pegasystems reported earnings before costs such as stock compensation of 23 cents per share, down 61% from 59 cents per share in the same quarter of last year. Revenue fell 14% from a year ago, to $352.47 million. Analysts had been expecting adjusted earnings of 38 cents per share and revenue of $349.74 million. Revenue from the company’s Pega Cloud cloud offering was up 19% year-over-year, to $107.9 million, while its subscription licensing revenue fell 39%, to $84.5 million. Pegasystems also saw a 13% drop in consulting revenue, to $53 million. While Pegasystems continues to go through its cloud transformation, the company is also seeing an improvement in key metrics such as operating cash flow, which rose 351% in the quarter, and free cash flow rose 325%. Annual contract value also rose 13%, or 15% on a constant currency basis.