On Tuesday, Piper Sandler adjusted its stance on BlackLine (NASDAQ:BL), moving the stock's rating from Underweight to Neutral and increasing the price target to $62.00, up from the previous $62.00. This change reflects a more favorable outlook on the company's potential performance in the second half of 2024.
The firm's decision to upgrade BlackLine is based on an assessment that the downside risks for the company are now limited, especially when considering the consensus growth forecast of 8% for the second half of 2024. This figure is notably lower than BlackLine's three-year annual average growth rate of 19%. There is a belief that these estimates might be overly cautious in light of recent improvements in cloud fundamentals at SAP, a key partner of BlackLine.
SAP has reported a significant year-over-year increase in its cloud backlog, which grew by €3 billion to €14.2 billion, demonstrating a 28% growth in constant currency, compared to 27% in the previous quarter. Given that around 25% of BlackLine's sales last year were driven by its partnership with SAP, this backlog growth at SAP could eventually translate into a positive development for BlackLine.
While acknowledging the potential for a future tailwind from SAP's cloud backlog, Piper Sandler maintains a conservative view for BlackLine's 2024 prospects. However, the firm has slightly raised its estimates for 2025. The increase in the price target to $62.00 is justified by these revised estimates.
InvestingPro Insights
Following Piper Sandler's recent upgrade of BlackLine's stock rating, real-time data from InvestingPro provides a deeper financial perspective on the company's standing. As of the last twelve months ending Q4 2023, BlackLine boasts a market capitalization of $3.61 billion, with a high Price/Earnings (P/E) ratio of 67.35, indicating investors may expect higher earnings growth in the future relative to the company's current earnings. This is further supported by the fact that BlackLine is trading at a low PEG ratio of 0.25, suggesting a potentially undervalued stock given the expected earnings growth.
InvestingPro Tips highlight that BlackLine is anticipated to see net income growth this year, which aligns with the positive outlook from Piper Sandler. Additionally, the company operates with a moderate level of debt, which could be reassuring for investors concerned about financial stability. These financial metrics and projections could be crucial for investors considering BlackLine's stock, especially when looking at the company's relationship with SAP and its potential impact on future performance.
For those seeking more comprehensive analysis and additional InvestingPro Tips, consider exploring the full suite of insights available through InvestingPro. There are more tips available that delve into the company's valuation and profitability forecasts. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and stay ahead with the latest financial data and expert analysis.
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