On Thursday, Baird adjusted its stance on Blackbaud (NASDAQ:BLKB) stock, moving the rating from Outperform to Neutral and reducing the price target to $80 from the previous $92. The decision comes after the company reported a mixed quarter and moderated growth forecasts.
The analyst at Baird highlighted that the revised outlook for Blackbaud's core Social Sector and a general reset of growth expectations were key factors in the downgrade. Previously anticipated growth rates were set above 7%, but the new forecast suggests a mid-single-digit increase in top-line revenue.
The analyst further elaborated that the reduced growth expectations for Blackbaud's core business segments are a central concern, leading to a less optimistic view on the potential impact of price increases. This reassessment of the company's financial prospects has prompted Baird to lower its price target, which now reflects roughly 18 times the firm's estimated 2025 enterprise value to free cash flow (EV/FCF).
Blackbaud, a provider of software and services specifically designed for nonprofit organizations, has been navigating through various challenges. One of the previously identified headwinds was the performance of EVERFI, a digital learning platform acquired by Blackbaud. However, the analyst noted that EVERFI's situation is no longer a primary focus due to plans to spin it out, which alters the forward-looking investment thesis for Blackbaud.
The adjustment in Blackbaud's stock rating and price target by Baird follows the company's latest financial disclosures. The tempered growth outlook has led to a recalibration of expectations among investors, as reflected in the revised price target. The new target is set with the expectation of a more conservative growth trajectory for Blackbaud in the coming years.
In other recent news, cloud software company Blackbaud, Inc. has adjusted its annual revenue guidance due to the underperformance of its EVERFI segment. Despite a 26% drop in EVERFI's revenue, the company reported a 6.6% increase in overall revenue and a 6.8% rise in contractual recurring revenue in its Third Quarter 2024 Earnings Conference Call. The company also anticipates an adjusted EBITDA margin within the ranges of 33% to 34% and non-GAAP earnings per share between $3.98 to $4.16.
The company's total revenue growth was fueled by the Social Sector, which saw strong performance. However, the lowered annual revenue guidance of $1.150 billion to $1.160 billion reflects the impact of EVERFI's underperformance. The company continues its stock repurchase strategy, aiming to buy back up to 10% of its common stock by year-end.
Blackbaud also highlighted its ongoing investments in innovation and plans to focus on cost management, employee productivity, and strategic mergers and acquisitions. Goldman Sachs is advising on strategic options for the EVERFI segment. These are among the recent developments that illustrate Blackbaud's commitment to maintaining growth and shareholder returns.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Blackbaud's financial position and market performance, providing context to Baird's downgrade. The company's market capitalization stands at $3.75 billion, with a P/E ratio of 88.69, indicating a high valuation relative to current earnings. This aligns with one of the InvestingPro Tips, which notes that Blackbaud is "Trading at a high earnings multiple."
Despite the high valuation, Blackbaud has shown some positive financial indicators. The company's revenue for the last twelve months as of Q2 2024 was $1.14 billion, with a revenue growth of 6.58%. This growth rate is in line with Baird's revised expectations of mid-single-digit increases in top-line revenue. Additionally, Blackbaud's EBITDA growth over the same period was an impressive 71.25%, suggesting improved operational efficiency.
An InvestingPro Tip highlights that "Management has been aggressively buying back shares," which could be seen as a sign of confidence in the company's future prospects, despite the tempered growth outlook. Another relevant tip indicates that the "RSI suggests the stock is in oversold territory," which may be of interest to investors following Baird's downgrade and the subsequent stock price movement.
For readers seeking a more comprehensive analysis, InvestingPro offers 12 additional tips for Blackbaud, providing a deeper understanding of the company's financial health and market position.
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