Progress Software Corp (NASDAQ:PRGS) announced its financials for the last quarter and surprised the market with its top-and-bottom-line beats. The company’s strong revenue performance and reasonable expense control contributed to these results. The stock surged over 10% immediately following the news and looks to continue the momentum into the future with the company’s integration of AI into its products and potential promising acquisitions on the horizon.
The shares trade at a discount to industry peers, making them a compelling option for investors looking for a tech-centric value play.
Progress Embracing AI
Progress is an international software corporation that creates, deploys, and manages business applications that enhance tech teams’ productivity. Its products are marketed to end-users, independent software vendors, original equipment manufacturers, system integrators, value-added resellers, and distributors.
PRGS is deeply investing in artificial intelligence (AI), adding capabilities to its products and enabling customers to create and manage AI-driven applications more efficiently.
Progress growth strategy relies heavily on mergers and acquisitions (M&A), with a steady stream of potential candidates continuously being considered. The possible acquisition of MariaDB (NYSE:MRDB), an open-source relational database company, is undergoing thorough due diligence. Management is highly focused on M&A as a primary vehicle to double the business size within the next five years.
Progress’ Recent Financial Results & Outlook
The company just announced financial results for the second quarter of 2024. The reported revenue of $175.08 million was higher than the analysts’ expectations of $168.42 million, though it marked a 2% year-over-year decrease. Annualized Recurring Revenue (ARR) stood at $579 million, reflecting a 1% annual growth. Additionally, the company displayed strong operational efficiency with an operating margin of 16% and a non-GAAP operating margin of 38%, driving earnings per share (EPS) of $1.09, which surpassed analysts’ projections of $0.95.
Also, Progress announced a quarterly dividend of $0.175 per share, at an effective dividend yield of 1.33%, to be dispersed to shareholders on September 16, 2024.
Management has given guidance for the next quarter and full year. For Q3 2024, the company anticipates revenue between $174-$178 million. The forecasted diluted earnings per share are $1.11-$1.15. FY 2024, the projected revenue range is $725-$735 million, an increase from the earlier guidance of $722-$732 million. Diluted earnings per share are expected to be $4.70-$4.80, up from the prior expectations of $4.65-$4.75.
What Is the Price Target for PRGS Stock?
Analysts following the company have been cautiously optimistic about the stock. For instance, Jefferies analyst Brent Thill recently lowered the price target on the shares from $60 to $55 while maintaining a Hold rating. He noted the top-and-bottom-line beats in Q2 and the current reasonable valuation, though a catalyst for future growth is still uncertain.
Progress Software is rated a Moderate Buy overall, based on the recommendations and price targets recently issued by three analysts. The average price target for PRGS stock is $61.50, representing a potential 13.34% upside from current levels.
The bounce in the share price after the earnings announcement has turned around the price momentum, with the stock now trading above its 20-day (50.87) and 50-day (50.86) moving averages. The stock sits in the middle of its 52-week price range of $48.16 – $61.54 and appears undervalued relative to industry peers, with a P/S ratio of 3.4x compared to the Software Infrastructure industry average of 9.87x.
PRGS in Summary
Progress has posted strong financial results, beating estimated revenue and earnings per share projections in Q2 2024. Integrating AI capabilities into its products and commitment to growth through mergers and acquisitions suggests further upside potential. With shares trading at a discount to industry peers and an optimistic future outlook, PRGS stands out as an attractive value-oriented investment opportunity.
