Blackbaud (BLKB) Up 45% in 2023: Will the Rally Continue?
Blackbaud BLKB witnessed strong momentum in 2023, with the stock rising 44.8% compared with S&P 500 Composite’s 25.3% growth.
BLKB is a well-known cloud software company. It offers a full spectrum of cloud-based and on-premise software solutions and related services for organizations of all sizes, especially the ones engaged in driving social good. It continues to invest heavily in cloud-based applications and software that is expected to bolster its long-term growth.
With healthy fundamentals and strong growth opportunities, this Zacks Rank #2 (Buy) stock appears to be a solid investment option at the moment.
Apart from a favorable rank, BLKB has a Growth Score of A. Per Zacks’ proprietary methodology, stocks with a combination of a Zacks Rank #1 (Strong Buy) or 2 and a VGM Score of A or B offer solid investment opportunities.
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BLKB’s 2023 and 2024 revenues are anticipated to rise 4.8% and 8%, respectively, year over year.
The company’s earnings are expected to increase 43.5% and 17.3% in 2023 and 2024, respectively, on a year-over-year basis. The long-term earnings growth rate is 23.4%.
Over the past 60 days, earnings per share (EPS) estimates for 2023 and 2024 have improved by 1.8% and 2.3% to $3.86 and $4.53, respectively, reflecting analysts’ optimism.
BLKB’s PE ratio is pegged at 19.16, which is below the industry’s ratio of 29.7.
Growth Drivers
Blackbaud’s performance is gaining from robust organic growth and extensive cost-cutting measures. Momentum in both contractual and transactional recurring revenue streams, coupled with rising volumes across its other payment solutions, bodes well. Frequent product launches along with rising customer renewal rates and bookings are likely to be beneficial.
In the last reported quarter, non-GAAP organic revenues grew 6.6% on a reported basis and 5.9% at constant currency, year over year. Non-GAAP organic recurring revenues rose 8.3% year over year. Total revenues jumped 6.2% year over year to $277.6 million.
Non-GAAP operating margin increased 960 basis points from the year-ago level to 28.7%, owing to extensive cost discipline. Non-GAAP adjusted EBITDA margin was 35%, up 940 bps year over year.
BLKB has a five-point growth strategy with an objective to deliver innovative products, drive booking growth, transactional revenue expansion, modernize pricing and multi-year customer contracts, and improve cost management.
The company is investing in generative AI to further expand its footprint. In October 2023, it announced that it was working on Impact Edge, a new AI-powered, social impact reporting and storytelling solution. Impact Edge will be integrating YourCause from Blackbaud and EVERFI from Blackbaud solutions within a single tool to consolidate data gathered from all reliable sources into one centralized location.
Strategic buyouts have played a pivotal role in driving the top line. The acquisition of EVERFI has helped the company to expand its total addressable market (TAM) by about two times. It added more than $14 billion in TAM through acquisitions and new product launches from 2014 to 2021.
Healthy Outlook
Driven by steady business momentum, Blackbaud reiterated its guidance for 2023. Management continues to expect non-GAAP revenues to be between $1.095 billion and $1.125 billion. It projects non-GAAP adjusted EBITDA margin in the range of 30.5-31.5%.
Non-GAAP EPS are anticipated to be between $3.63 and $3.94. Non-GAAP adjusted free cash flow for 2023 is forecast in the $190-$210 million band.
However, weakness prevailing over global macroeconomic conditions, forex volatility, a leveraged balance sheet and stiff competition continue to be concerns.
Other Key Picks
Some other top-ranked stocks worth consideration in the broader technology space are Cadence Design Systems CDNS, NETGEAR NTGR and Watts Water Technologies WTS. Each stock carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Cadence’s 2023 EPS has remained unchanged in the past 60 days to $5.10. CDNS’ long-term earnings growth rate is 17.9%.
Cadence’s earnings beat the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 4.1%. Shares of CDNS have gained 70.6% in the past year.
The Zacks Consensus Estimate for 2023 is pegged at a loss of 9 cents per share for NETGEAR, which remained unchanged in the past 30 days. NTGR’s earnings outpaced the Zacks Consensus Estimate in three of the last four quarters while missing once. The average surprise was 127.5%. Shares of NTGR were down 20.2% in the past year.
The Zacks Consensus Estimate for Watts Water Technologies’ 2023 EPS has improved by 3.9% in the past 60 days to $8.08.
WTS’ earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 11.8%. Shares of WTS have jumped 43.1% in the past year.
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