Magic (MGIC) AI Stock Analysis

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Magic

(NASDAQ:MGIC)

80Outperform

Magic's stock is supported by strong financial performance and a strategic merger that enhances growth prospects. Technical indicators show positive trends, though caution is advised due to overbought signals. Valuation is fair, with an attractive dividend yield. The earnings call underscores strategic growth initiatives, despite some regional growth challenges.

Positive Factors

Financial Performance

Revenue increased 13.6% year-over-year, driven by continued growth in the Israeli market and stability in the U.S. market.

Market Recovery

North America stabilization continues with the U.S. market showing encouraging signs of early recovery momentum.

Merger

The merger with Matrix I.T Ltd. is seen as a strategic opportunity to strengthen Magic’s market position through an expanded product and service offering at a greater, and more resilient, global scale.

Negative Factors

Stock Rating

As a result of the merger, the stock is downgraded to a Market Perform rating.

Valuation

Shares trade at an enterprise value of 1.1 times 2025 consensus revenue estimate, a discount to the peer group at 2.3 times revenue.

Magic (MGIC) vs. S&P 500 (SPY)

Market Cap

$644.18M

Dividend Yield3.31%

Average Volume (3M)110.94K

Price to Earnings (P/E)17.5

Beta (1Y)0.44

Revenue Growth3.26%

EPS Growth-0.41%

CountryUS

Employees3,628

SectorTechnology

Sector Strength44

IndustryInformation Technology Services

Share Statistics

EPS (TTM)0.75

Shares Outstanding49,099,304

10 Day Avg. Volume58,197

30 Day Avg. Volume110,944

Financial Highlights & Ratios

PEG RatioN/A

Price to Book (P/B)N/A

Price to Sales (P/S)1.24

Price to Cash Flow (P/CF)N/A

P/FCF Ratio0.00

Enterprise Value/Market CapN/A

Enterprise Value/RevenueN/A

Enterprise Value/Gross ProfitN/A

Enterprise Value/EbitdaN/A

Forecast

1Y Price Target

$16.00

Price Target Upside19.94% Upside

Rating ConsensusModerate Buy

Number of Analyst Covering2

Magic Business Overview & Revenue Model

Company DescriptionMagic Software Enterprises Ltd. provides proprietary application development, business process integration, vertical software solutions, and information technologies (IT) outsourcing software services in Israel and internationally. The company's Software Services segment develops, markets, sells, and supports application platform, software applications, and business and process integration solutions and related services. Its IT Professional Services segment offers IT services in the areas of infrastructure design and delivery, application development, technology planning and implementation services, communications services and solutions, and supplemental outsourcing services. The company offers proprietary application platforms, such as Magic xpa for developing and deploying business applications; AppBuilder for building, deploying, and maintaining high-end and mainframe-grade business applications; Magic xpi for application integration; FactoryEye for virtualization of production data; BusinessEye for organizational business intelligence; and Magic SmartUX for cross-platform mobile business applications. It also provides vertical software solutions comprising Clicks, a software solution for healthcare providers; Leap, a software solution for business support systems; Hermes Cargo, a packaged software solution for managing air cargo ground handling; HR Pulse, a single-tenant software as a service tool; MBS Solution, a system for managing TV broadcast management; Nativ, a system for management of rehabilitation centers; and Mobisale, a system for sales and distribution field activities for consumer goods manufacturers and wholesalers. In addition, the company provides software maintenance, support, training, and consulting services. The company was formerly known as Mashov Software Export (1983) Ltd. and changed its name to Magic Software Enterprises Ltd. in 1991. Magic Software Enterprises Ltd. was incorporated in 1983 and is headquartered in Or Yehuda, Israel.

How the Company Makes MoneyMagic (MGIC) generates revenue primarily through the premiums it charges for its mortgage insurance products. The company enters into agreements with mortgage lenders to provide insurance coverage that protects lenders against losses in the event of borrower defaults. The premiums collected from these insurance policies constitute the main revenue stream for MGIC. Additionally, MGIC's earnings can be influenced by factors such as the volume of new insurance written, the persistency of existing insurance policies, and the overall health of the housing market. The company's financial performance is also tied to its ability to effectively manage claims and the investment income generated from the premiums it holds.

Magic Financial Statement Overview

Summary

Magic's financial performance shows robust revenue growth, effective cost management, and solid profitability. The balance sheet is stable with moderate leverage and a strong equity base. Cash generation capabilities are strong, but there is room to improve net profit margins and ROE further.

Income Statement

Very Positive

Magic demonstrated consistent revenue growth from $325.63M in 2019 to $552.52M in 2024, with a strong CAGR. The gross profit margin in 2024 is approximately 28.45%, indicating effective cost management. The net profit margin for 2024 is about 6.67%, showing solid profitability. EBIT and EBITDA margins are 11.08% and 14.85%, respectively, reflecting operational efficiency. Overall, the income statement reflects healthy growth and profitability, though there is room for enhancing net margins further.

Balance Sheet

Positive

The debt-to-equity ratio in 2024 stands at 0.31, indicating a moderate leverage position. The equity ratio is 51.31%, showing a strong equity base relative to assets. ROE is approximately 13.30%, which is robust and indicative of effective shareholder value creation. The balance sheet is stable, with prudent debt management and healthy equity levels, though further improvement in ROE would be beneficial.

Cash Flow

Positive

Free cash flow grew from $40.43M in 2019 to $73.16M in 2024, showcasing strong cash generation capabilities. The operating cash flow to net income ratio is approximately 2.03, indicating efficient conversion of earnings to cash. Free cash flow to net income ratio is 1.98, reflecting strong cash retention. While cash flow performance is commendable, continued focus on maintaining cash flow growth relative to net income will support financial stability.

Dec 2024	Dec 2023	Dec 2022	Dec 2021	Dec 2020
Breakdown
Income Statement		Total Revenue
552.52M	535.05M	566.79M	480.32M	371.19M
	Gross Profit
157.18M	152.99M	155.35M	132.99M	109.59M
	EBIT
61.24M	57.11M	61.38M	51.23M	40.59M
	EBITDA
82.06M	82.27M	82.20M	74.47M	55.62M
	Net Income Common Stockholders
36.88M	37.03M	40.47M	29.77M	25.19M
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
112.83M	106.69M	86.97M	94.82M	89.65M
	Total Assets
540.33M	522.41M	510.97M	492.05M	443.32M
	Total Debt
86.15M	108.72M	79.79M	62.10M	49.40M
	Net Debt
-26.63M	2.77M	-3.27M	-25.99M	-38.72M
	Total Liabilities
239.26M	231.46M	205.70M	185.94M	149.34M
	Stockholders Equity
277.19M	265.98M	263.65M	265.25M	260.43M
Cash Flow		Free Cash Flow
73.16M	64.19M	41.86M	35.86M	46.22M
	Operating Cash Flow
74.69M	68.99M	49.52M	40.49M	52.30M
	Investing Cash Flow
-22.41M	-27.62M	-27.34M	-18.45M	-9.60M
	Financing Cash Flow
-45.15M	-17.29M	-18.35M	-21.29M	-39.65M

Magic Technical Analysis

Technical Analysis Sentiment

Positive

Last Price13.34

Price Trends

50DMA

12.70

Positive

100DMA

12.30

Positive

200DMA

11.41

Positive

Market Momentum

MACD

0.07

Negative

RSI

58.30

Neutral

STOCH

66.02

Neutral

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For MGIC, the sentiment is Positive. The current price of 13.34 is above the 20-day moving average (MA) of 12.78, above the 50-day MA of 12.70, and above the 200-day MA of 11.41, indicating a bullish trend. The MACD of 0.07 indicates Negative momentum. The RSI at 58.30 is Neutral, neither overbought nor oversold. The STOCH value of 66.02 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Positive sentiment for MGIC.

Magic Risk Analysis

Magic disclosed 47 risk factors in its most recent earnings report. Magic reported the most risks in the “Finance & Corporate” category.

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

Latest Risks Added 0 New Risks

Magic Peers Comparison

Overall Rating

UnderperformOutperform

Sector (58)

Financial Indicators

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
MGIC	80 Outperform	$644.18M	17.47	13.58%	3.31%	3.26%	-0.41%
IMOS	66 Neutral	$556.42M	12.41	5.63%	5.38%	3.24%	-26.85%
Sector *	58 Neutral	$9.82B	10.00	-6.63%	3.09%	7.49%	-11.58%
CEVA	58 Neutral	$542.29M	―	-3.31%	―	3.68%	26.36%
CSIQ	53 Neutral	$484.40M	13.53	1.34%	―	-21.68%	-99.75%
MLAB	45 Neutral	$592.37M	―	-89.38%	0.57%	11.68%	-26360.70%
XRX	43 Neutral	$496.83M	―	-65.36%	21.50%	-9.70%	-5576.16%

* Technology Sector Average

Performance Comparison

MGIC

Magic

13.34

2.34

21.27%

CSIQ

Canadian Solar

7.89

-6.98

-46.94%

CEVA

Ceva

23.50

4.19

21.70%

IMOS

ChipMOS Technologies

15.27

-11.93

-43.86%

MLAB

Mesa Laboratories

113.04

6.97

6.57%

XRX

Xerox

4.09

-9.30

-69.45%

Magic Earnings Call Summary

Earnings Call Date: Mar 11, 2025 | % Change Since: 6.46% | Next Earnings Date: May 7, 2025

Earnings Call Sentiment Positive

The earnings call reflects a generally positive outlook due to significant revenue growth, a strategic merger, and strong performance in cloud services. However, there were some areas of concern, such as stagnant organic growth in North America and a decrease in net income. Despite these, the merger with Matrix I.T. is expected to create substantial value and enhance future growth prospects.

Highlights

Revenue Growth in Q4 2024

Revenue in the fourth quarter of 2024 increased to $142.6 million, up approximately 13.6% from the fourth quarter of 2023, driven by strong demand for cloud, DevOps, and AI services.

Successful Merger Announcement

Magic Software announced a merger with Matrix I.T., which will create a combined entity expected to generate over $2 billion in annual revenues, providing a 13% premium on Magic's share price prior to the announcement.

Cloud Services Growth

Revenues from cloud services increased by 45% year-over-year in 2024, with over 400 satisfied customers across various industries.

Debt Reduction

Total financial debt decreased from $82 million to $59 million by the end of 2024.

Cash Flow Improvement

Cash flow from operating activities for the year ended in 2024 was $74.7 million, compared to $69 million in the same period last year.

Lowlights

Decline in North American Revenue Excluding Acquisitions

Excluding Theoris, revenues in North America remained stable, indicating a lack of growth in organic operations in the region.

Decrease in Non-GAAP Net Income

Non-GAAP net income for the fourth quarter decreased by 0.5% to $11.5 million, and for the year, it decreased by 5.7% to $45.7 million.

Slight Decrease in Gross Margin

Non-GAAP gross margin for the year decreased by 20 basis points from 29.6% to 29.4%.

Company Guidance

During the Magic Software Enterprises 2024 Fourth Quarter and Full Year Financial Results Conference Call, significant guidance was provided, including the announcement of a merger with Matrix I.T., projected to create a combined market capitalization of $2.3 billion. The merger anticipates generating over $2 billion in annual revenues, with a gross profit of $382 million and an operating income of $183 million, reflecting a 9% operating margin. The EBITDA is expected to reach $217 million, yielding a margin of over 10%, while net income attributable to non-controlling interest is projected at $110.6 million with a 5.4% net margin. For 2025, Magic forecasts revenues between $593 million and $603 million, indicating a growth rate of 7.3% to 9.1%. The company also highlighted a 45% year-over-year increase in cloud services revenue and maintained a strong cash position with $112.8 million in cash and cash equivalents. The merger strategy emphasizes leveraging cross-selling opportunities and enhancing geographic reach, particularly in the US and Israeli markets.

Glossary

OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.

NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.

UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.

Disclaimer

This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.