On Thursday, Goldman Sachs adjusted its stance on Bentley Systems Incorporated (NASDAQ:BSY), a provider of software solutions for advancing infrastructure design, construction, and operations. Following the company's third-quarter financial results, the firm's analyst increased the price target to $51, up from the previous $50, while maintaining a Neutral rating on the stock.
The adjustment comes after Bentley Systems reported third-quarter revenues that were slightly below consensus expectations by 0.8%, attributed to challenges from Cohesive Services Revenue and market conditions in China. Despite this, the company's free cash flow margin (FCFM) exceeded consensus estimates by 10 percentage points.
Bentley Systems' management expressed confidence in achieving a 100 basis point operating margin (OpM) expansion, which includes stock-based compensation for the current year and the midterm. Additionally, the company has raised its free cash flow (FCF) conversion target to 85% of adjusted EBITDA, up from the previous 80%.
The firm highlighted Bentley Systems' consistent annual recurring revenue (ARR) growth, which was up 12.5% excluding China, compared to 11.5% in the second quarter of 2024. This growth trajectory is seen as positioning Bentley well to meet its full-year 2024 ARR guidance of 11.75% on a constant currency basis.
The analyst noted Bentley Systems' continued strength in the Public Works and Utilities sectors, bolstered by the steady rollout of Infrastructure Investment and Jobs Act (IIJA) funding in the U.S. However, there is a note of caution regarding potential changes in budget allocations with the upcoming administration change. The report also mentioned strong international momentum, particularly in the Indian market.
Bentley Systems' recent strategic acquisition of Cesium is seen as expanding the small and medium-sized business (SMB) opportunity and advancing the company's focus on AI-driven digital twins. Despite these positives, the analyst opted for a cautious stance, citing Bentley's valuation profile at 46 times enterprise value to free cash flow (EV/FCF) over the next twelve months, which carries a significant premium compared to its design software peers, averaging 35 times. This valuation is noted especially in light of the similar next twelve months (NTM) Rule Of profiles (NTM Revenue Growth + NTM FCF Margin) of 39, compared to its peers.
In other recent news, Bentley Systems Incorporated has secured a $1.3 billion revolving credit facility, managed by PNC Bank. The company has also seen an 11% increase in annual recurring revenue (ARR) in Q2 2024, along with a rise in recurring subscription revenues. Bentley Systems also declared a Q3 2024 cash dividend of $0.06 per share. In terms of strategic developments, the company recently acquired Cesium, a 3D geospatial company, and launched OpenSite+, an AI-powered application for civil site design. Bentley Systems has also entered into a strategic partnership with Google (NASDAQ:GOOGL) to integrate Google's geospatial data into its software and digital twin platform. Analysts from Oppenheimer maintain a positive outlook on Bentley Systems, suggesting anticipated ARR growth driven by E365 renewals, new logos in the SMB segment, and asset analytics deals. These are the recent developments at Bentley Systems, Incorporated.
InvestingPro Insights
Bentley Systems' financial metrics and market position offer additional context to Goldman Sachs' analysis. According to InvestingPro data, the company boasts impressive gross profit margins of 80.36% for the last twelve months as of Q2 2024, underscoring its operational efficiency. This aligns with the company's confidence in achieving operating margin expansion, as noted in the article.
InvestingPro Tips highlight that Bentley Systems is trading at a low P/E ratio relative to its near-term earnings growth, with a PEG ratio of 0.32. This suggests potential undervaluation, despite the analyst's caution regarding the company's premium valuation compared to peers. The company's profitability over the last twelve months and analysts' predictions for continued profitability this year further support its strong financial position.
It's worth noting that InvestingPro offers 11 additional tips for Bentley Systems, providing a more comprehensive analysis for investors seeking deeper insights into the company's financial health and market position.
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