On Monday, Barclays made a notable adjustment to its stance on Tyler Technologies Inc . (NYSE: NYSE:TYL) stock, a leading provider of software to U.S. state and local governments. The firm upgraded Tyler Tech from an Equalweight rating to Overweight.
Accompanying this upgrade was a significant increase in the price target for Tyler Tech shares, which now stands at $700, up from the previous target of $577.
The upgrade is grounded in several key observations made by the analyst. Firstly, there is an expectation that Tyler Tech will accelerate the transition of its customer base to Software as a Service (SaaS) solutions.
The analyst noted that recent discussions indicate a considerable number of Tyler's on-premise customers are expected to update to more current software versions by the end of the year. This progression will facilitate easier conversions from maintenance to SaaS models, which could increase revenue given the higher value associated with SaaS contracts.
Secondly, Barclays anticipates that Tyler Tech's SaaS transition, combined with its solid customer base in state and local government sectors, warrants an evaluation of the company's valuation based on more normalized financial metrics.
The firm projects that Tyler Tech could achieve its $1 billion free cash flow (FCF) target and a 30% EBIT margin by fiscal year 2029, one year ahead of the company's own FY30 targets. This projection is based on a 41x FCF multiple, which is below Tyler Tech's five-year average of 50x but still supports the raised price target.
Lastly, the analyst highlighted Tyler Tech's strong market position as the top vendor in vertical-specific software for U.S. state and local governments. The analyst also mentioned that Tyler Tech's end-market customers are considered to be well-funded, which adds to the attractiveness of the company as an investment.
In summary, the upgrade to Overweight and the new price target of $700 reflect a positive outlook on Tyler Tech's ability to expedite its SaaS conversion, the company's financial target achievements, and its leading market position in a sector with well-funded customers.
In other recent news, Tyler Technologies has seen significant developments. The company has partnered with Envisio, a strategic planning and performance management software firm, to enhance local government budgeting processes. The partnership aligns with the "Rethinking Budgeting" initiative by the Government Finance Officers Association and aims to improve transparency and community outcomes.
Tyler Technologies has also successfully transitioned the Idaho Supreme Court's case management system to a cloud-based model. This move is expected to enhance efficiency and security. The company's second-quarter financial performance showed a 7% year-on-year revenue increase to $541.0 million, with non-GAAP earnings per share rising to $2.40. This growth was driven by a 23% increase in the software as a service (SaaS) segment and accelerating SaaS conversions.
Several analyst firms have maintained or upgraded their ratings on Tyler Technologies. Loop Capital maintained its Buy rating, citing the company's growing momentum in cloud conversions. Oppenheimer maintained its Outperform rating, expressing confidence in the company's growth due to strong public sector demand.
Piper Sandler raised its price target on Tyler Technologies, while Baird upgraded its price target for Tyler Technologies, maintaining an Outperform rating following a robust quarter and raised guidance. These are the recent developments that investors should be aware of.
InvestingPro Insights
To complement Barclays' bullish outlook on Tyler Technologies Inc. (NYSE: TYL), recent data from InvestingPro offers additional context for investors. The company's market capitalization stands at $24.73 billion, reflecting its significant presence in the government software sector. Tyler's revenue growth of 6.7% over the last twelve months and 7.28% in the most recent quarter aligns with the analyst's positive view on the company's expansion.
InvestingPro Tips highlight that 16 analysts have revised their earnings upwards for the upcoming period, suggesting growing confidence in Tyler's financial performance. This corresponds with Barclays' expectation of accelerated SaaS transition and potential early achievement of financial targets. Additionally, Tyler's strong return over the last five years and high return over the last decade, as noted by InvestingPro, support the analyst's view on the company's solid market position and financial strength.
It's worth noting that Tyler is trading near its 52-week high, with a price-to-earnings ratio of 118.38, indicating investor optimism but also a premium valuation. This high multiple aligns with Barclays' assessment of Tyler's growth potential and market leadership. Investors interested in a deeper analysis can access 15 additional InvestingPro Tips for Tyler Technologies, providing a more comprehensive investment perspective.
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