CFRA, a financial research firm, increased its price target on shares of SAP AG (ETR:SAPG) (NYSE: NYSE:SAP) to $259 from the previous $232. The firm has maintained its Buy rating on the stock. The revision comes on the back of a higher price-to-earnings (P/E) ratio of 34.1 times the anticipated earnings per share (EPS) for the year 2026, which is above the historical average due to SAP's growth prospects.
SAP AG reported its third-quarter earnings per share (EPS) at €1.23, surpassing the consensus estimate of €1.21. This beat occurred despite the EPS being lower than the €1.45 reported in the same quarter the previous year. The company's sales increased by 9%, which was slightly above expectations. This sales growth was driven by a robust 25% increase in cloud growth, although it was partially offset by a 5% decline in software licenses and support and a 2% drop in services.
The firm highlighted SAP's operational execution and improving visibility in the market, noting a 25% growth in cloud backlog, which adjusts to 29% growth in constant currency (CC). Additionally, cloud ERP sales saw a significant increase of 34%, or 36% in CC.
The analyst from CFRA expressed a positive view of SAP's advancements in artificial intelligence (AI), including large-scale deals with 30% of cloud orders now incorporating AI capabilities. Over 60% of cloud orders are valued at more than €5 million. The innovation related to Joule, SAP's digital copilot, was also commended. Joule is expected to soon interact with other AI agents, enhancing the company's offerings.
SAP's predictable revenue now accounts for 86% of sales, which is seen as a positive indicator of the company's financial stability. The company has also incrementally raised its cloud sales, profit, and free cash flow (FCF) outlook for 2024, and the analyst foresees potential upside to margins and consensus views for 2025 to 2027.
SAP AG reported a robust performance in the third quarter, driven by a 27% increase in cloud revenue, reaching €4.35 billion ($4.71 billion). Notably, sales from the Cloud ERP Suite climbed by 36%, contributing significantly to this growth. The company's operating profit also saw a substantial 28% increase to €2.24 billion, surpassing market expectations.
Recent developments also include the acquisition of WalkMe, expected to enhance SAP's business transformation offerings. In light of strong results, SAP revised its full-year cloud and software revenue targets, now expecting between €29.5 billion and €29.8 billion. The company also adjusted its 2024 operating profit forecast to €7.8 billion. These updates reflect the ongoing positive trend in SAP's financial performance.
InvestingPro Insights
SAP's strong performance and positive outlook are reflected in recent InvestingPro data and tips. The company's market capitalization stands at an impressive $271.14 billion, underscoring its position as a prominent player in the software industry. SAP's revenue growth of 6.57% over the last twelve months and 9.76% in the most recent quarter aligns with the firm's reported sales increase and robust cloud growth mentioned in the article.
InvestingPro Tips highlight that SAP has maintained dividend payments for 33 consecutive years, demonstrating financial stability and commitment to shareholder returns. This consistency supports the article's mention of SAP's predictable revenue accounting for 86% of sales. Additionally, the tip indicating SAP's high return over the last year is corroborated by the impressive 77.17% one-year price total return.
The stock's current trading near its 52-week high and its substantial price uptick over the last six months (29.96% return) reflect the market's positive reception of SAP's AI advancements and improved financial outlook, as discussed in the article. Investors seeking more comprehensive analysis can access 12 additional InvestingPro Tips for SAP, providing deeper insights into the company's performance and potential.
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