On Thursday, Jefferies adjusted its stance on NICE Systems Ltd (NASDAQ: NICE), downgrading the stock from Buy to Hold and reducing the price target to $200 from the previous $215. According to InvestingPro data, NICE currently trades at $181.75, with analyst targets ranging from $187 to $315, suggesting potential upside despite the downgrade.
InvestingPro analysis indicates the stock is currently undervalued. The revision comes as the analyst at Jefferies expressed concerns about the company's cloud revenue growth projections for the second half of 2024 and the full year of 2025.
The analyst pointed out that consensus estimates for cloud revenue growth were overly optimistic for the latter half of 2024 and the following year. Despite management's adjustment of the organic forecast for 2024 to a 16.5% increase at the midpoint during the third-quarter call, the analyst noted that the consensus expectations for 2025 did not sufficiently reset.
Historical data from InvestingPro shows NICE achieved 13.5% revenue growth in the last twelve months, with a strong financial health score of 3.17 out of 4, rated as "GREAT."
Jefferies forecasts a 15% growth for NICE Systems in 2025, which falls below the consensus estimate of 16.6%. The analyst also highlighted uncertainty regarding how much growth is expected from the acquisitions of LiveVox and Playvox, suggesting that the market's organic growth expectations might need to be revised downwards.
Additionally, the analyst indicated that the management of NICE Systems is likely to adopt a conservative approach when providing guidance for 2025. This strategy would set a more attainable target for the company under its new CEO, aiming to ease the transition and set realistic benchmarks for performance.
In conclusion, the report from Jefferies suggests that the firm does not anticipate NICE Systems to outperform the current consensus expectations for the year 2025, prompting the downgrade and price target adjustment.
However, InvestingPro reveals several positive indicators, including strong cash flow coverage of interest payments and profitability over the last twelve months. Subscribers can access 4 additional ProTips and a comprehensive Pro Research Report for deeper insights into NICE's financial health and growth prospects.
In other recent news, NICE Ltd. reported a year-over-year increase in total revenue for the third quarter, reaching $690 million, with cloud revenue growing by 24% to $500 million. Earnings per share increased by 27% to $2.88. Despite these robust results, NICE's organic cloud growth was slightly below expectations, leading to revised forecasts from Mizuho (NYSE:MFG), DA Davidson, and Citi.
Mizuho lowered its price target for NICE Systems to $220, maintaining an Outperform rating. DA Davidson also adjusted its price target to $225, while maintaining a Buy rating. Citi reduced its target to $315 but retained a Buy rating. All three firms cited NICE's revised cloud growth forecast as a reason for the adjustments.
In contrast, Oppenheimer downgraded NICE Systems due to deceleration in the company's organic cloud growth. Despite this, NICE secured over 100 large enterprises as clients, with over 45 of them switching from competitor cloud vendors. Lastly, NICE announced a CEO transition from Barak Eilam to Scott Russell, set to take effect soon. These are among the recent developments shaping NICE's business trajectory.
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