On Monday, Trimble Navigation (NASDAQ:TRMB) stock, currently trading at $73.59 and maintaining a robust market capitalization of $18 billion, received an upgrade from Wolfe Research, shifting from a Peerperform rating to Outperform with an increased price target of $90.00.
The upgrade followed the company's Investor Day, which showcased positive updates across its business segments and raised long-term financial targets.
According to InvestingPro analysis, Trimble's current valuation appears to be aligned with its Fair Value, suggesting the stock is fairly priced despite recent gains.
Trimble's transition towards a recurring business model has been highlighted as a key factor supporting its growth in annual recurring revenue (ARR) and earnings per share (EPS). With a strong gross profit margin of 66% and healthy return on assets of 15.4%, the company demonstrates solid operational efficiency.
The updated pro forma financials and targets aim to address variability in consensus estimates and alleviate concerns regarding fiscal year 2025 estimates.
Wolfe Research views these profitability targets as conservative yet achievable, with the potential for further upside if economic conditions improve. InvestingPro subscribers can access detailed financial health metrics and 10+ additional ProTips that provide deeper insights into Trimble's business fundamentals.
The company's simplified segment presentation is expected to attract more investor interest, bolstered by successful cross-selling strategies, as evidenced by a net revenue retention (NRR) rate exceeding 100% across all segments, even amidst a soft macroeconomic environment.
Trimble's shares have seen a significant uptick, with InvestingPro data showing an impressive 42.15% return over the past year and trading near its 52-week high of $76.97. This performance has significantly outpaced its Vertical Software (ETR:SOWGn) peers, which are up by 10% YTD.
Historically, Trimble has traded at a discount compared to its peers due to its unique business segments and reliance on upfront revenue. However, the firm assigns Trimble's valuation based on price-to-earnings (P/E) ratio, considering one-time impacts on free cash flow (FCF) next year from divestiture costs. At approximately 27 times calendar year 2026 P/E, implied by the $90 price target, Trimble is trading at a 20% discount relative to its industry peers.
Wolfe Research believes that the discount is justified, as Trimble's long-term targets suggest that recurring revenue will make up approximately 70% of its total revenue by calendar year 2026, nearly doubling the proportion of recurring business prior to its divestitures.
The firm also anticipates that consensus estimates for fiscal year 2025 and mid-term have been recalibrated following Trimble's Investor Day, with potential for surpassing profitability targets that would result in accelerated EPS growth.
The report concludes with a positive outlook for Trimble's ability to drive ARR growth through the successful transition of its customer base, which should further enhance cross-selling and upselling opportunities. This strategic shift and the anticipated completion of the company's audit review in the coming weeks are expected to serve as positive catalysts for the stock.
In other recent news, Trimble Inc. has seen a flurry of activity from analysts. Oppenheimer upgraded its price target for Trimble shares to $88, while Baird and Bernstein raised their targets to $90 and $85 respectively. JPMorgan also showed confidence in the company, shifting its stock rating from Neutral to Overweight and increasing the price target to $92.
This follows Trimble's reported 14% organic growth in Annual Recurring Revenue (ARR), reaching $2.187 billion, and a record gross margin of 68.5%.
Trimble's transition towards a software-centric business model has resulted in software and services now accounting for 75% of sales, up from 55% in 2019. This shift has significantly improved the company's financials, boosting gross margins from 58% to 70%. Trimble's new go-to-market strategy has also led to increased cross-selling, which could add an additional $1.4 billion by around 2027.
However, the company is currently under scrutiny by the Nasdaq Stock Market due to non-compliance with filing requirements. Trimble is working closely with Ernst & Young LLP to complete an assessment of its internal controls over financial reporting and plans to appeal the decision.
In a strategic move, Trimble plans to divest its mobility business to focus on high-growth sectors. The company's partnerships with Deere (NYSE:DE) and Caterpillar (NYSE:CAT) aim to enhance technology adoption. These are some of the recent developments in Trimble's operations.
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