DA Davidson has increased its price target for Pegasystems (PEGA, Financial) from $70 to $90, maintaining a Neutral rating on the stock. This adjustment follows Pegasystems' stronger-than-expected performance in its first-quarter results, particularly in areas such as Pega Cloud and total contract value, as well as revenue and earnings.
According to the firm's analysis, Pegasystems' management expressed a more optimistic view on market demand than anticipated, despite the challenging economic conditions. This positive sentiment contributed to the revised price target, reflecting confidence in the company's future performance.
Wall Street Analysts Forecast
Based on the one-year price targets offered by 12 analysts, the average target price for Pegasystems Inc (PEGA, Financial) is $97.63 with a high estimate of $125.00 and a low estimate of $78.12. The average target implies an upside of 10.24% from the current price of $88.56. More detailed estimate data can be found on the Pegasystems Inc (PEGA) Forecast page.
Based on the consensus recommendation from 14 brokerage firms, Pegasystems Inc's (PEGA, Financial) average brokerage recommendation is currently 2.1, indicating "Outperform" status. The rating scale ranges from 1 to 5, where 1 signifies Strong Buy, and 5 denotes Sell.
Based on GuruFocus estimates, the estimated GF Value for Pegasystems Inc (PEGA, Financial) in one year is $51.16, suggesting a downside of 42.23% from the current price of $88.56. GF Value is GuruFocus' estimate of the fair value that the stock should be traded at. It is calculated based on the historical multiples the stock has traded at previously, as well as past business growth and the future estimates of the business' performance. More detailed data can be found on the Pegasystems Inc (PEGA) Summary page.
Key Business Developments
Release Date: February 13, 2025
- ACV Growth: Increased 11% year-over-year in constant currency.
- Pega Cloud ACV Growth: Increased 21% year-over-year in constant currency.
- Cash Flow from Operations: Grew 59% year-over-year to $346 million.
- Free Cash Flow: Grew 68% year-over-year to $338 million.
- Cash and Investments: $740 million as of December 31, 2024.
- Pega Cloud Non-GAAP Gross Margins: Increased by approximately 300 basis points year-over-year to 78%.
- Stock Repurchase: 884,000 shares repurchased for $73.5 million in 2024.
- 2025 ACV Growth Guidance: Expected to grow by 12% year-over-year.
- 2025 Free Cash Flow Guidance: $440 million, a 30% increase year-over-year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Pegasystems Inc (PEGA, Financial) achieved a Rule of 40 status, balancing growth and profitability, which is a testament to their strategic transition to a subscription cloud business.
- The company reported a significant increase in cash flow from operations, growing 59% year-over-year to $346 million, and free cash flow grew 68% year-over-year to $338 million.
- Pega Gen AI Blueprint is driving transformative change, with new capabilities that enhance legacy transformation and create new market opportunities.
- Pega Cloud ACV increased by 21% year-over-year in constant currency, indicating strong growth in their cloud offerings.
- The company has a strong cash and investment position of $740 million, providing financial flexibility to pay off convertible debt and repurchase shares.
Negative Points
- Currency headwinds impacted Pegasystems Inc (PEGA)'s financial results, with a $40 million headwind in Q4 affecting Pega Cloud backlog and revenue growth.
- Maintenance revenue is expected to decline as the company transitions more clients to Pega Cloud, which could impact short-term revenue streams.
- Pega Cloud gross margins are expected to remain flat in 2025 due to investments in cloud migrations, limiting potential margin expansion.
- The company faces challenges in maintaining sales efficiency while increasing investment in sales and marketing to pursue new logos.
- There is uncertainty in the timing of client migrations from term licenses to cloud, which could affect revenue recognition and growth projections.
