On Thursday, Pegasystems Inc . (NASDAQ:PEGA) saw its price target increased by Rosenblatt from $90.00 to $95.00, while the firm kept a Buy rating on the stock. This adjustment follows Pegasystems' third-quarter financial report, which showed a 3% year-over-year decline in revenue, totaling $325.1 million. This figure was consistent with Rosenblatt's estimate of $324 million and close to the consensus of $326 million. The decrease in revenue was attributed to fluctuations in on-premise term licenses.
Despite the overall revenue dip, Pegasystems experienced significant growth in its cloud segment. Pega Cloud revenue climbed by 22% compared to the previous year, and the Annual Contract Value (ACV) for Pega Cloud increased by 30%. This positive performance in the cloud business was a highlight in the company's financial outcomes.
In response to the quarterly results, Rosenblatt has made slight revisions to its revenue forecasts for Pegasystems for the fiscal years 2024 and 2025. Additionally, the firm has introduced its projections for fiscal year 2026 and adjusted its valuation to a blend of fiscal years 2025 and 2026. This recalibration is what prompted the increase in the price target to $95.
Rosenblatt's commentary on the update was clear: "Following Q3 results, we are marginally adjusting our revenue forecast for Pega for FY24 and FY25. With the passage of time, we are introducing our FY26 estimates and rolling forward our valuation to blended FY25-26, which moves our target price to $95 (was $90). We remain buyers of Pega at current levels."
Pegasystems, known for its software for customer engagement and operational excellence, is navigating the transition from on-premise licenses to cloud-based services, a move that is reflected in the company's growing cloud revenue despite the broader revenue challenges.
In other recent news, Pegasystems Inc. reported third-quarter earnings that exceeded analyst expectations with an adjusted earnings per share of $0.39, outpacing the consensus estimate of $0.33. However, the company's revenue was slightly below expectations, landing at $325.05 million against estimates of $326.16 million. A noteworthy development was the company's Annual Contract Value (ACV) growth, which increased by 16% year-over-year to $1.36 billion, while Pega Cloud ACV, a key growth metric, saw a 30% rise compared to the previous year.
Despite an overall 3% YoY decline in total revenue, subscription services revenue experienced a 12% increase to $224.8 million. On the other hand, subscription license revenue saw a significant 39% drop to $45.4 million. The company's strong free cash flow was also highlighted, reaching $246 million in the first nine months of 2024. This was attributed to the steep acceleration in Pega Cloud growth, reflecting clients' commitment to digital transformation.
Pegasystems reported a GAAP net loss of $14.4 million, or $0.17 per share, for the third quarter, compared to a loss of $7.3 million, or $0.09 per share, in the same period last year.
InvestingPro Insights
Pegasystems Inc.'s recent financial performance and Rosenblatt's optimistic outlook are further supported by real-time data from InvestingPro. The company's market capitalization stands at $6.69 billion, reflecting its significant presence in the software industry. Notably, Pegasystems has demonstrated strong revenue growth, with a 15.43% increase over the last twelve months as of Q2 2024, and an even more impressive 17.73% quarterly growth in Q2 2024. This aligns with the company's robust performance in its cloud segment, as highlighted in the article.
InvestingPro Tips suggest that Pegasystems is expected to be profitable this year, with net income projected to grow. This positive outlook is consistent with Rosenblatt's decision to raise the price target. Additionally, the company's high return over the last year, with a 79.06% price total return, underscores investor confidence in Pegasystems' strategic direction.
It's worth noting that Pegasystems is trading near its 52-week high, with its current price at 98.3% of the 52-week high. This, coupled with the company's P/E ratio of 51.12, indicates that investors are pricing in strong future growth expectations, likely driven by the expanding cloud business.
For readers interested in a deeper analysis, InvestingPro offers 13 additional tips for Pegasystems, providing a comprehensive view of the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.