On Friday, BofA Securities expressed a more optimistic view on Dassault Systemes SE (DSY:FP) (OTC: DASTY (OTC:DASTY)) stock, upgrading to Buy from its previous Neutral rating. The firm also raised its price target on the shares to EUR43.00, up from EUR40.00, suggesting a 28% potential upside.
The upgrade comes with a reassessment of the company's 2024 guidance, which BofA Securities believes has been sufficiently de-risked. The valuation of Dassault Systemes is noted as appealing, particularly as it hovers near a four-year low and is positioned at 25 times the estimated 2025 earnings per share (EPS).
BofA Securities highlighted Dassault Systemes as a "high-quality long-term compounder," forecasting a revenue compound annual growth rate (CAGR) of 8.2% through to 2028. This growth trajectory is expected to translate into a 10% increase in EPS and a 14% rise in free cash flow (FCF) over the same period.
The firm also indicated that the downgrade cycle for Dassault Systemes appears to have concluded. The 2024 revenue guidance has been set with conservative estimates that do not rely on the signing of large deals.
Additionally, medium-term growth forecasts have been adjusted to what BofA Securities considers more realistic figures, with expectations around 8-9% growth for the years 2025 and 2026.
Regarding Medidata, a company acquired by Dassault Systemes, expectations have been reset. Meanwhile, the anticipation of further mergers and acquisitions has largely subsided.
Although BofA Securities has slightly reduced its EBIT estimates for 2025 and 2026 by 2%, the EPS projections remain largely unchanged due to a lower anticipated tax rate. The increased price target reflects both the lower tax forecast and a slight uptick in the long-term growth estimate, now at 8% compared to the previous 7.4%.
InvestingPro Insights
As BofA Securities upgrades Dassault Systemes (OTC: DASTY) to a Buy rating, the financial metrics and analyst activities surrounding the company paint a detailed picture for potential investors. According to InvestingPro data, Dassault Systemes boasts a robust gross profit margin of 83.77% for the last twelve months as of Q1 2024, which underscores the firm's efficiency and market strength. Furthermore, the company's commitment to shareholder returns is evident with its dividend having increased for 3 consecutive years, and it has maintained dividend payments for an impressive 28 consecutive years.
While the company's P/E ratio stands at a high 41.12, suggesting a premium valuation, it's worth noting that Dassault Systemes has demonstrated a high return over the last decade. This may justify the higher earnings multiple to some investors, especially those with a long-term horizon. Additionally, the stock's low price volatility could appeal to conservative investors seeking stability in their portfolio.
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