A wave of automation is coming over the next few years- so it pays to be prepared. That’s according to a new report from RBC Capital which imagines what the world will look like in 2025. Specifically, the report takes a deep dive into RPA, or robotic process automation. As the name suggests, RPA refers to the automation or augmentation of manual repetitive tasks to improve user productivity.
“We believe the Robotic Process Automation (RPA) market is one of the most exciting areas of software given its disruptive nature, high value proposition, evolving capabilities, and the size of the addressable market” cheers the firm. Indeed, IDC (International Data Corp) describes the market as <$1B in size in 2018 growing to >$3.5B in 2022 (i.e. a CAGR of ~50%).
Looking out to the future
RPA solutions are currently best suited to repetitive, stable tasks carried out with high frequency. Common use cases include invoice processing, records management, customer support, and data management. However, this is just the beginning. The promise of future RPA software is not only to automate business processes but to improve them.
RPA combined with AI will be able to address sophisticated processes. For example, RBC Capital writes “Vendors are working toward cognitive, AI-infused bots, which they believe can one day reformulate current process rules into more accurate and consistent algorithms.” As the technology matures, RBC believes RPA use will rapidly expand with vastly improved time to value, lower risk and minimal IT support.
While key RPA players are not US-listed (i.e. UiPath, Automation Anywhere and Blue Prism (LON:PRSM)), there are still a handful of US names primed to gain from this lucrative opportunity. Here we take a closer look at RBC Capital’s highlighted stocks. What’s more, as you will see below, all five of these stocks score a ‘Strong Buy’ Street consensus based on all ratings from the last three months:
1. Verint Systems (VRNT)
New York-based analytics company Verint Systems sells software and hardware products for customer engagement, security, and business intelligence. VRNT introduced its own RPA solution in 2016. The company uses patented visual recognition technologies in a LCNC (low-code/ no-code) development environment, which doesn't require integration or programming to work with other applications.
Plus Verint also offers a web-based dashboard to manage and monitor bots. “Verint’s RPA capabilities are a component of its Actionable Intelligence platform, where management believes that increasing the pace of automation and cloud innovation can further differentiate Verint as the vendor of choice in its market” says RBC Capital.
Overall Verint has a 100% Street support right now. Five analysts have recently published buy ratings on the stock, with an average price target of $73 (25% upside potential). In particular, JP Morgan's Paul Coster recently adding the name to his firm's Analyst Focus List as a top value idea.
He hiked his price target to $78 from $74 and described VRNT as "significantly undervalued" relative to peers. That's despite shares soaring 37% year-to-date.
2. ServiceNow (NOW)
ServiceNow claims to make the world of work, work better for people. It helps companies digitize workflows to unlock productivity.
NOW is among cloud providers including Salesforce (CRM) and Amazon (AMZN) that are creating new automation solutions with networked platforms for virtual business processes. “ServiceNow’ s UI and Table API can be accessed by RPA tools through its connectors and can be used in conjunction with RPA tools to build a unified platform for enterprise workflows” points out RBC Capital.
Meanwhile shares are up 62% year-to-date. Five-star RBC Capital analyst Matthew Hedberg calls NOW one of his Top Pick stocks. Following a strong Q2 earnings report, the analyst wrote “ServiceNow remains a favorite idea given best-in-class unit economics, above-average growth, a lack of competition, expanding use cases, and FCF leverage.”
In total, 19 out of 21 polled analysts are bullish on NOW stock. The average analyst price target of $316 suggests 9% upside potential for the coming months.
3. Salesforce (CRM)
Cloud-based software giant Salesforce calls itself the number 1 customer relationship platform. The company currently uses RPA technology partnerships to supplement its own processes rather than as part of its product offerings.
However, CRM has outlined its commitment to automation rich solutions within the Einstein platform which will be similar to RPA. These solutions are designed to augment and support the company’s AI-powered CRM offerings.
“Salesforce sees the strategic deployment of Einstein as a fundamental re-evaluation of a business, with RPA and AI as fundamental building blocks of a larger digital automation architecture” explains RBC Capital.
The stock has an overwhelmingly bullish outlook from the Street right now. Out of 24 analysts covering the stock, only one is staying on the sidelines. With an average analyst price target of $184, analysts (on average) are predicting 15% upside potential from current levels. Year-to-date the stock has gained 17%.
"Based on healthy demand fundamentals and a compelling risk-reward, we would be aggressive buyers of CRM with 14% upside to our $180 base-case PT and 36% upside to our bull-case of $215" enthused KeyBanc analyst Brent Bracelin after meeting Salesforce customers and partners.
4. Microsoft (MSFT)
Microsoft scores its place on the RBC list thanks to its recent investment in Flow. This is a trigger-based automated workflow tool that integrates with MSFT’s Power Platform and puts the company firmly on the Cloud automation map.
“Flow and the Power platform position the company to provide enterprise functionality comparable to RPA, with Power BI providing an analytics layer and PowerApps as the LCNC developer platform” says RBC Capital.
With connectors to every Microsoft application with a SaaS interface, as well as other platforms like Gmail and DropBox, Flow is designed to help users work more efficiently across apps. Looking ahead, RBC also believes that Flow may open the door for Microsoft to delve more deeply into the process automation market.
Over the last three months, 22 analysts have published buy ratings on MSFT stock. That’s versus just 1 hold rating and 1 sell rating. We can also see that the average price target of $154 translates into upside potential of 9%.
RBC’s Hedberg significantly boosted his MSFT price target on July 24 from $136 to $153. He made the call following Microsoft's stellar earnings report. “Larger investments to win larger stakes” cheered Hedberg, referring to the company’s longer duration, larger contracts for its Azure cloud platform.
5. Pegasystems (PEGA)
Last but not least comes Pegasystems, a leading provider of BPM (business process management) and CRM applications. It has a heavy skew towards B2C verticals like financial services, insurance, telecoms, healthcare, and the public sector.
Most notably Pega systems’ acquisition of original RPA vendor OpenSpan in early 2016 formally added RPA to its CSR-focused automation solutions. “Pega sees its value in customized process design, where automation robotics provide a first level of efficiency and are just one tool among many for building an end-to-end customer engagement suite” writes RBC Capital.
The company is already a technology partner to most leading RPA C&SI consultancies and IT service providers, including Deloitte, KPMG, Accenture, and Cognizant. And it strives to be among the top 2 vendors in additional digital transformation categories like digital process automation, real-time decisions/AI, and customer engagement.
Only three analysts cover PEGA right now, but all three rate the stock a ‘buy.’ Their average price target works out at $84 (7% upside potential). That’s with shares exploding 65% year-to-date.