Oppenheimer has maintained a Perform rating on shares of SAP AG (NYSE: NYSE:SAP), following the company's third-quarter results and guidance which surpassed expectations.
SAP reported that its top-line growth has accelerated, with notable cloud revenue and cash generation increases. The company has consistently generated over €1 billion in free cash flow (FCF) each quarter throughout 2024 and is on track to meet its 2025 free cash flow projections.
Despite the positive outcomes, there was a note of caution regarding the current cloud backlog metrics, which appeared softer compared to previous quarters.
This could indicate that deal volume might not have met expectations, although the growth rate for the cloud segment is still considered strong. SAP's third-quarter performance has been bolstered by its Cloud ERP revenue, suggesting that the company is benefiting from the current ERP modernization cycle.
SAP is recognized as a leader in this space, and the company is expected to see a significant increase in cash flow by 2025. Oppenheimer's decision to maintain the Perform rating on SAP stock is based on valuation, but the firm acknowledges that SAP is trending positively.
In other recent news, German software giant SAP SE (ETR:SAPG) reported a robust performance for the third quarter, primarily driven by a 27% growth in cloud revenue, which amounted to €4.35 billion ($4.71 billion).
This growth was partly attributed to the Cloud ERP Suite resource planning program, which saw sales climb by 36%. The company's operating profit also witnessed a substantial increase of 28% to €2.24 billion, surpassing market expectations.
Recent developments also include the acquisition of WalkMe, which is expected to enhance SAP's business transformation offerings. As a result of these strong results, SAP has revised its full-year cloud and software revenue targets, now expecting between €29.5 billion and €29.8 billion, up from the previous range of €29 billion to €29.5 billion.
The company has also adjusted its operating profit forecast for 2024 to €7.8 billion, from the earlier projection of €7.6 billion to €7.9 billion.
SAP is also undergoing a restructuring process, estimated to cost around €3 billion, in preparation for the emerging AI era, involving evaluation of up to 10,000 jobs out of the company's approximate 100,000 employees.
InvestingPro Insights
SAP's strong performance highlighted in the article is further supported by recent InvestingPro data. The company's market capitalization stands at an impressive $274.81 billion, reflecting its significant position in the software industry. SAP's revenue growth of 9.76% in the most recent quarter aligns with the article's mention of accelerated top-line growth and increased cloud revenue.
InvestingPro Tips indicate that SAP has maintained dividend payments for 33 consecutive years, demonstrating long-term financial stability. This consistency in dividend payments complements the article's discussion of SAP's strong cash generation, with over €1 billion in free cash flow each quarter in 2024.
The stock's high return over the last year, with a 77.17% price total return, underscores the positive market sentiment mentioned in the article. However, it's worth noting that the stock is trading near its 52-week high, with a P/E ratio of 99.61, suggesting a premium valuation that aligns with Oppenheimer's cautious stance on valuation.
For investors seeking a deeper understanding of SAP's financial health and market position, InvestingPro offers 16 additional tips, providing a comprehensive analysis to inform investment decisions.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.