Here's Why Investors May Bet on Pegasystems (PEGA) Stock
Pegasystems PEGA is a stock that investors may consider adding to their portfolio to make some gains from its upside potential amid ongoing volatility. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Apart from a favorable rank, PEGA has a Growth Score of A. Per Zacks’ proprietary methodology, stocks with a combination of a Zacks Rank #1 or #2 (Buy) and a VGM Score of A or B offer solid investment opportunities.
The Zacks Consensus Estimate for 2023 and 2024 earnings per share is pegged at $1.35 and $1.94, indicating an increase of 87.5% and 44%, year over year, respectively. The consensus estimate for 2023 and 2024 revenues is pegged at $1.4 billion and $1.53 billion, implying year-over-year growth of 6% and 9.8%, respectively.
PEGA has delivered an average earnings surprise of 11.2% over the trailing four quarters. The stock is currently trading at 44.5% below its 52-week high price of $83.41 on Mar 22, 2022 making it relatively affordable for investors.
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A Look at Growth Drivers
Pegasystems is a leading provider of Customer Relationship Management software that enables transaction-intensive organizations to manage a broad array of customer interactions. The company's customers represent a wide range of industries, including banking and financial services, insurance, healthcare management and telecommunications.
The digital transformation, especially enterprise automation taking place globally, is driving the company’s performance. Increasing adoption of Pega cloud augurs well. The company has unveiled new low-code templates for its cloud platform and new services as well to aid clients to enhance productivity while reducing burden for IT teams.
Transition to subscription model is also driving the company’s top-line performance. The company’s subscription revenues exceeded $1 billion in 2022 and now represent more than 81% of Pega's total revenues. The company’s annual contract value or ACV growth is being driven by its go-to-market strategy, which is primarily focused on cross-selling and upselling to its existing client base.
In the last reported quarter, the company’s revenues were up 25% to $396.5 million, driven by subscription revenues (up 37% year over year). Non-GAAP earnings per share was 82 cents compared with 4 cents reported in the year-ago period. The improvement was driven by cost control measures, especially in the area of sales and marketing.
For 2023, the company expects non-GAAP revenues to be $1.4 billion while ACV growth rate is expected to be between 11% and 13%.
Weakness in global macroeconomic conditions and cutback in spending by clients are likely to affect the company’s performance in the near term. Unfavorable forex movements, lingering supply-chain troubles and inflation are other headwinds.
Other Stocks to Consider
Some other top-ranked stocks in the broader technology space are Arista Networks ANET, Perion Network PERI and Cadence Design Systems CDNS, each presently sporting a Zacks Rank #1.
The Zacks Consensus Estimate for Arista Networks’ 2023 earnings is pegged at $5.79 per share, rising 11.6% in the past 60 days. The long-term earnings growth rate is anticipated to be 14.2%.
Arista Networks’ earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 14.2%. Shares of ANET have increased 22% in the past year.
The Zacks Consensus Estimate for Perion’s 2023 earnings is pegged at $2.69 per share, rising 16% in the past 60 days. The long-term earnings growth rate is anticipated to be 25%.
Perion’s earnings beat the Zacks Consensus Estimate in all the last four quarters, the average being 31.7%. Shares of PERI have increased 60% in the past year.
The Zacks Consensus Estimate for Cadence’s 2023 earnings is pegged at $4.97 per share, rising 10% in the past 60 days.
Cadence’s earnings beat the Zacks Consensus Estimate in two of the trailing four quarters, the average surprise being 10.5%. Shares of CDNS have gained 32% in the past year.
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