Progress Software Shares Leap 9% on Q3 Beat and Raised Guidance

Progress Software Corporation (PRGS) shares jumped almost 9% in Friday’s pre-market trading session after the company delivered blowout third-quarter results, topping estimates and previous guidance. The company also raised its FY2021 guidance for the third time, well above analyst expectations.

Markedly, shares of the provider of software for creating and deploying high-impact business applications have gained 31% over the past year. (See Progress Software stock charts on TipRanks)

In Q3, adjusted earnings of $1.18 per share grew 51% year-over-year and significantly beat analysts’ expectations of $0.82 per share. The company reported earnings of $0.78 per share in the prior-year period.

On top of this, revenues jumped 38% year-over-year to $152.6 million and exceeded consensus estimates of $131 million.

The increase in revenues reflected a surge in software license revenues, which increased a whopping 89% to $51.9 million, and a 16% growth in maintenance and services revenues, which jumped to $95.5 million. Notably, annualized recurring revenue (ARR) improved 25% year-over-year to $444 million.

Fiscal 2021 Guidance Raised Ahead of Expectations

Based on the outstanding Q3 results, the company raised its annual 2021 guidance for the third time this year.

For Fiscal 2021, the company now forecasts adjusted earnings in the range of $3.68 to $3.70 per share, while the consensus estimate is pegged at $3.47 per share. The company previously expected adjusted earnings in the range of $3.46 to $3.50 per share.

On top of this, revenues are forecast to be in the range of $548 – $552 million, versus the consensus estimate of $533.2 million. This compares to the previously-guided annual revenue range of $529 – $535 million.

For the fiscal fourth quarter, adjusted earnings are likely to range between $0.73 and $0.75 per share. Further, revenues are projected to be in the range of $1.34 – $1.38 million.

Progress Software to Snap Up Kemp Technologies for $258M

Concurrent with the earnings announcement, Progress Software announced that it has inked a deal to acquire Kemp Technologies, a leader in the application experience space, in an all-cash deal worth $258 million.

The deal is expected to be accretive to earnings and cash flows starting in the fiscal fourth quarter of 2021 and will be a good strategic fit for the company.

Subject to certain regulatory approvals, the acquisition is expected to close in October 2021. The company will fund the acquisition with available cash on the balance sheet.

Progress Software CFO Anthony Folger commented, “Q3 results were outstanding across every metric and our confidence in our business is reflected in the increased outlook for 2021.”

He further added, “In addition to our strong financial results and outlook, we continued to execute our total growth strategy while remaining disciplined with the acquisition of Kemp, a deal that positions us exceptionally well for 2022 and beyond.”

Today, Citigroup analyst Tyler Radke reiterated a Hold rating on the stock and raised his price target to $50 from $48 (8.2% upside potential).

Radke believes that Progress Software’s reliance on acquisitions for growth together with increasing macro-level risks justifies the PRGS’ valuation discount relative to its peers.

Overall, the stock has a Moderate Buy consensus rating based on 2 Buys and 1 Hold. The average Progress Software price target of $54 implies 16.9% upside potential from current levels.