Shares of The Ultimate Software Group, Inc. (NASDAQ: ULTI) are up over 25 percent thanks to "strong execution in a healthy demand environment," according to Wedbush, but the research firm is stepping to the sidelines.
Webush analyst Steve Koenig downgraded shares of Ultimate Software from Outperform to Neutral and increased the price target from $234 to $255 on higher peer multiples.
Ultimate Software is expected to have a solid year, with potential revenue and earnings per share upside, Koenig said in a Wednesday note. Wedbush's channel checks revealed a greater urgency in enterprise IT investment and SaaS adoption trends that are likely to benefit the company, Koenig said.
"A stable sales organization should set the table for sales productivity improvements and sustained FY18 momentum, if the demand environment remains robust."
Ultimate's guidance for 20-percent recurring revenue growth is "achievable," with any risk being to the upside, the analyst said.
Ultimate Software's project to create a next-gen version of its platform, core products and add-on modules began in 2012 and is expected to wind down by 2020, Koenig said. Wedbush expects an increase in operational investments to support growth as the project costs moderate.
Ultimate's capital expenditure is likely to increase to $90 million in 2018, keeping the free cash flow margin rangebound in the 14-14.5-percent range, at least for the time being, Koenig said.
"ULTI shares are now trading at about 50x EV/FCF on our FY18 estimate ($158M, about $5/ share), and our long-term DCF leaves less room for upside."
The Price Action
Ultimate Software shares were down 0.45 percent at $247.65 Wednesday.
Paylocity Notches Upgrade On Projections Of Sustained Revenue Growth
Channel Checks Suggest A Solid Q1 For Adobe: Morgan Stanley Previews The Print
Latest Ratings for ULTI
|Feb 2018||Bank of America||Maintains||Underperform||Underperform|
View More Analyst Ratings for ULTI
View the Latest Analyst Ratings
See more from Benzinga
- Core Growth At Inovalon Slackening, Morgan Stanley Says In Downgrade
- Telsey Positive on Golden Entertainment's American Gaming Acquisition
- Goldman Now A Sunoco Bear On Projections Of Negative Consensus Revisions
© 2018 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.