Canaccord Genuity has adjusted its price target for PagerDuty (NYSE: NYSE:PD), reducing it to $24 from $26, while keeping a Buy rating on the stock.
The company's announcement to lower its full-year revenue growth forecast to around 8% year-over-year, from the previously projected 10%, prompted the revision.
The change reflects a more cautious approach to the timing of larger strategic deals and their near-term revenue recognition.
PagerDuty, which had reaffirmed its Annual Recurring Revenue (ARR) growth guidance, experienced greater deal scrutiny and higher levels of approval requirements, particularly in the second quarter, which were more pronounced than initially anticipated.
This led to a change in revenue forecasting. Following the update, the company's shares saw a decline, dropping approximately 12% in after-market trading as investors processed the revised revenue expectations.
Despite the lower revenue guidance, Canaccord Genuity remains optimistic about PagerDuty's future, citing the company's valuation at nearly 3 times its Calendar Year 2025 estimated sales and 15 times its Calendar Year 2025 estimated Free Cash Flow (FCF).
The firm suggests that these metrics could represent a valuation floor for software companies with high potential for FCF growth.
In other recent news, PagerDuty has experienced a series of adjustments in stock price targets by various firms following mixed Q2 results. The company reported a quarterly revenue of $115.9 million, lower than anticipated, but posted a stronger-than-expected non-GAAP operating income of $20.1 million.
Analysts from Baird, RBC Capital, BofA Securities, JPMorgan (NYSE:JPM), and Goldman Sachs (NYSE:GS) have all adjusted their outlooks, reducing their price targets while maintaining their respective ratings.
These decisions were influenced by PagerDuty's downward revision of its FY'25 revenue guidance due to delays in closing enterprise deals. Despite these challenges, the company's Annual Recurring Revenue (ARR) displayed signs of stability, maintaining a 10% year-over-year growth for the third consecutive quarter. Firms like William Blair and RBC Capital continue to maintain their Outperform rating, indicating a belief in PagerDuty's potential.
InvestingPro Insights
In light of Canaccord Genuity's price target adjustment for PagerDuty, real-time data from InvestingPro provides a deeper insight into the company's financial health and market performance. With a market capitalization of $1.75 billion and a high gross profit margin of 81.97% in the last twelve months as of Q1 2023, PagerDuty demonstrates a strong ability to retain earnings from its revenue. Despite not being profitable over the last twelve months, analysts are optimistic, expecting net income growth this year, a sentiment supported by four analysts revising their earnings upwards for the upcoming period.
InvestingPro Tips highlight two critical aspects: PagerDuty's management has been actively engaging in share buybacks, indicating confidence in the company's value, and the firm holds more cash than debt on its balance sheet, suggesting financial stability. These factors, coupled with the company's impressive gross profit margins, position PagerDuty as a potentially undervalued investment, especially as it trades near its 52-week low.
For investors considering PagerDuty's stock, additional InvestingPro Tips can be found on the platform, providing further analysis on the company's performance and future outlook. With the next earnings date set for September 3, 2024, and a fair value estimate of $22, both investors and analysts will be watching closely to see if PagerDuty can capitalize on its strategic role in IT operations and achieve its growth potential.
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