On Wednesday, Craig-Hallum upgraded PROS Holdings (NYSE:PRO) shares from Hold to Buy, setting a price target of $31.00. The firm's assessment followed PROS Holdings' quarterly results, which surpassed expectations both for revenue and earnings. The company's annual guidance was also revised upwards, reflecting a positive outlook for the year.
The analyst noted that business conditions have remained consistent with projections made 90 days prior. The B2B segment displayed robust growth, while the travel sector continued to face challenges. However, there is an expectation that the travel industry will recover in quarters, not years. The analyst also anticipated that street estimates would likely increase for PROS Holdings' EBITDA in 2024 and 2025.
PROS Holdings has been successfully executing its strategies, particularly with its Gen IV product, which has led to a resurgence in new deal flow. The company's approach to broadening its Total Addressable Market (TAM) by simplifying adoption and minimizing the need for large data sets has been effective. Despite difficulties in the travel segment, the analyst believes that the next changes will likely reduce the negative impact and enhance growth rates.
On the profitability front, PROS Holdings has shown impressive incremental EBITDA margins, with 76% in 2023, an estimated 82% in 2024, and 43% in 2025. The forward-looking expectations for profitability are deemed conservative, with potential for significant upward revisions in the coming quarters.
The analyst concluded that despite the absence of a turnaround, the stock price, which is approximately $19, reflects a level of pessimism that is not expected to play out. With the stock trading at 19 times the P/E on projected 2026 earnings, the analyst finds it improbable for the multiple to decrease further. The report expects that earnings per share estimates for 2025 and 2026 will likely be revised upwards, justifying the maintained $31 price target over the next 12 months.
In other recent news, PROS Holdings has reported impressive earnings and revenue results, with a significant profitability milestone of an 80% non-GAAP subscription gross margin. The company exceeded its third-quarter expectations, particularly in the B2B segment, and achieved a 24% EBITDA beat.
Notably, PROS Holdings has revised its 2024 forecasts for subscription revenue and EBITDA upward, following a strong third quarter, indicating an improved business outlook. However, the company's Travel sector continues to face challenges due to geopolitical issues.
In additional news, the company's Chief Executive Officer has announced plans to retire in 2025. This announcement comes as PROS Holdings demonstrates consistent third-quarter results and record profit margins. Furthermore, the company has appointed Jennifer Biry, an experienced executive from McAfee, to its Board of Directors, a move expected to bring valuable financial and operational expertise.
Analyst firms Needham and Oppenheimer have maintained their positive stance on PROS Holdings, with Needham maintaining a Buy rating and Oppenheimer retaining an Outperform rating. Despite the ongoing challenges in the travel sector, both firms anticipate a resolution in the near future. These are the recent developments shaping PROS Holdings' trajectory.
InvestingPro Insights
Recent data from InvestingPro provides additional context to Craig-Hallum's upgrade of PROS Holdings. Despite the company's recent challenges, InvestingPro Tips highlight that PROS has seen a significant return over the last week, with a 9.55% price total return. This aligns with the analyst's optimistic outlook and the stock's potential for recovery.
However, it's important to note that PROS Holdings has not been profitable over the last twelve months, with a negative operating income of $35.94 million. This underscores the importance of the company's strategic execution and the anticipated improvements in profitability mentioned in the analyst report.
The company's revenue growth of 9.36% over the last twelve months, as reported by InvestingPro, supports the analyst's observation of consistent business conditions and robust growth in the B2B segment. This growth, coupled with the company's gross profit margin of 63.82%, suggests that PROS Holdings has a solid foundation for future profitability as it navigates challenges in the travel sector.
InvestingPro data also reveals that the stock's fair value based on analyst targets is $33, which is in line with Craig-Hallum's price target of $31. This indicates potential upside from the current price levels, supporting the upgrade to a Buy rating.
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips and metrics that could provide further insights into PROS Holdings' financial health and market position.
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