On Monday, JPMorgan initiated coverage on Bentley Systems Incorporated (NASDAQ:BSY) stock, a software company specializing in infrastructure projects, with a Neutral rating and a price target of $52.
The company's software is designed to support the entire lifecycle of horizontal infrastructure projects, such as roads, bridges, and public utilities, covering aspects of project and asset management.
According to InvestingPro data, the company maintains impressive gross profit margins of 80.78% and has achieved 9.06% revenue growth over the last twelve months.
The firm acknowledges the long-term fundamentals of Bentley Systems, noting the defensive nature of its market demand. This demand is bolstered by ongoing government stimulus and a current shortage of structural engineers. Despite these positive indicators, the analyst pointed out that Bentley Systems has struggled to exhibit significant growth acceleration.
InvestingPro's analysis shows the company maintains a GOOD overall financial health score, though 9 analysts have recently revised their earnings estimates downward for the upcoming period.
JPMorgan also highlighted the absence of mid-term catalysts that could potentially provide tailwinds to the company's revenue. With shares of Bentley Systems trading at approximately 12 times enterprise value to sales (EV/Sales) and around 30 times enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA), the analyst believes the stock is fairly priced.
The valuation implies a premium compared to peers in the construction software sector and Vertical SaaS companies with similar profitability profiles.
The price target of $52 per share reflects the firm's assessment of Bentley Systems' current market position and future prospects within the Vertical SaaS universe. The Neutral rating suggests that the analyst sees the company's stock as neither significantly undervalued nor overvalued at this point in time.
In other recent news, Bentley Systems reported its Q3 2024 financial results, showcasing a year-over-year growth in Annual Recurring Revenue (ARR) of 12% to $1.271 billion. The company's strategic acquisitions, like Cesium, and partnerships, including one with Google (NASDAQ:GOOGL), are set to bolster its 3D geospatial capabilities and infrastructure asset management.
Despite facing challenges in China and delays in professional services revenue, Bentley Systems maintains a positive outlook on its long-term investment strategy and the U.S. infrastructure investment landscape.
The company has secured a new $1.3 billion credit facility and reduced senior debt to $168 million. Operating income for the quarter stood at $69 million, with an impressive operating cash flow of $86 million. Bentley anticipates continued low double-digit ARR growth with a margin improvement of 100 basis points and is trending above its 10.5% to 13% ARR growth outlook for 2024.
In terms of recent developments, the acquisition of Cesium and a partnership with Google are expected to enhance Bentley's offerings. However, professional services revenue declined due to delays in IBM (NYSE:IBM) Maximo-related projects, and total revenues are trending towards the lower end of expectations. Despite these challenges, Bentley Systems remains committed to innovation, strategic growth, and digital transformation in the infrastructure sector.
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