Tuesday, BMO Capital Markets adjusted its outlook on SAP AG (NYSE: NYSE:SAP) shares, raising the software giant's price target from $248.00 to $265.00 while maintaining an Outperform rating. The adjustment follows SAP's recent financial disclosures, which revealed a solid current cloud backlog and free cash flow (FCF) that significantly exceeded both the analyst's and the consensus expectations.
The analyst from BMO Capital highlighted that SAP's implied fourth-quarter FCF guidance appears to be very conservative. Despite this, the company has shown a potential decrease in its fiscal year 2024 cloud revenue at constant currency, if WalkMe's contributions are excluded.
WalkMe, which is expected to add approximately €65 million in revenue in the second half of fiscal year 2024, was seen as a contributing factor to SAP's performance.
The report further emphasized SAP's ongoing transition to cloud services, projecting a positive long-term scenario. BMO's positive stance is supported by the belief that their fiscal year 2025 FCF estimate for SAP may turn out to be on the lower side, indicating potential for upward revisions in the future.
In conclusion, the analyst reiterated SAP as their top pick, underlining the company's steady progress in its cloud conversion narrative. The raised price target to $265 reflects BMO Capital's confidence in SAP's ability to continue its growth trajectory in the cloud sector.
InvestingPro Insights
SAP's strong performance, as highlighted in the BMO Capital Markets report, is further supported by recent data from InvestingPro. The company's market capitalization stands at an impressive $275.45 billion, reflecting its dominant position in the software industry. SAP's revenue growth of 9.76% in the most recent quarter aligns with the analyst's positive outlook on the company's cloud transition strategy.
InvestingPro Tips indicate that SAP has maintained dividend payments for 33 consecutive years, demonstrating financial stability and commitment to shareholder returns. This consistency in dividend payments complements the company's solid free cash flow performance mentioned in the article.
The stock's high return over the last year, with a 77.17% price total return, underscores investor confidence in SAP's cloud conversion narrative. This aligns with BMO Capital's decision to maintain an Outperform rating and raise the price target.
It is worth noting that SAP is trading near its 52-week high, with its current price at 98.82% of the 52-week high. This information, combined with the analyst's raised price target, suggests continued optimism about SAP's future performance.
For investors seeking a more comprehensive analysis, InvestingPro offers 16 additional tips on SAP, providing a deeper understanding of the company's financial health and market position.
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