Pegasystems rises as Wedbush upgrades, citing 'attractive' risk-reward
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Pegasystems (NASDAQ:PEGA) shares rose more than 4.5% in pre-market trading on Wednesday after investment firm Wedbush Securities upgraded the software company, citing an "attractive" risk-reward at current levels.
Analyst Dan Ives raised his rating on Pegasystems (PEGA) shares to outperform from neutral and boosted the per-share price target to $65 from $50, citing " incrementally better field checks" and the fact the company has an "under the radar AI story" that is starting to form.
Ives pointed out that Pegasystems (PEGA) is transitioning its model to focus on the cloud, with subscription revenue now accounting for roughly 85$ of total revenue. As such, the company's model is more stabilized than it was in the past, with more recurring revenue and higher gross margins as it marches towards the Rule of 40.
The Rule of 40 is a software mantra that says its combined growth rate and profit margin should surpass 40%.
Ives also pointed out that generative AI is likely to be a "net positive" for the company, citing improvements in data collection, integration, transcript summaries and simulation.
"The company views generative AI as a significant positive step for automating complex workloads that will further empower organization coding but will not substitute due to current generative AI technology not being complex enough to build and run workflow automation across an enterprise while being a significant headwind to most current low-code platforms, but we believe Pega's layer cake architecture and use of public/ private data will be a tailwind for the Platform over the coming years," Ives wrote in an investor note.
Ives also said the company's legal issues with the Appian (TEAM) lawsuit are "overblown" and that the company will have to pay a settlement that is "significantly" less than the original judgement of $2.036B.
Analysts are largely cautious on Pegaystems (PEGA). It has a BUY rating from Seeking Alpha authors, while Wall Street analysts rate it a HOLD. Conversely, Seeking Alpha's quant system, which consistently beats the market, rates PEGA a HOLD.
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