On Thursday, CFRA raised the price target on Temenos AG (TEMN:SW) (OTC: TMSNY) to CHF56.00 from the previous CHF52.00, while maintaining a Sell rating on the stock.
The adjustment reflects a valuation based on a forward P/E of 18.9x for the year 2024, which is notably lower than the firm's three-year historical average P/E of 24.9x. The reduced P/E ratio is seen as a response to near-term uncertainties affecting the company.
Temenos reported a second-quarter total software licensing revenue for 2024 of $102 million, which is a 1% decrease year-over-year. The company experienced a significant drop in term license sales, which were down by 50%. This downturn was largely attributed to a report by Hindenburg Research, which led to extended delays in deal signings.
Following these developments, Temenos adjusted its full-year 2024 outlook. The company now expects total software licensing growth to range from 3% to 6%, a revision from the previously forecasted 7% to 10%.
Additionally, the anticipated annual recurring revenue growth has been scaled back to 13% from the earlier estimate of about 15%.
CFRA's analysis suggests that Temenos may face a difficult year in 2024. The firm also indicates that the current volatile operating conditions and the uncertain macroeconomic outlook may constrain banking sector IT spending, which could further limit Temenos's near-term growth prospects.
InvestingPro Insights
Recent data from InvestingPro provides additional context to Temenos AG's (OTC: TMSNY) current market performance. With a market capitalization of $5.03 billion and a P/E ratio standing at 37.28, Temenos trades at a higher earnings multiple than the industry average. This aligns with CFRA's valuation concerns and the high P/E ratio relative to near-term earnings growth. Despite a challenging second quarter, Temenos has demonstrated resilience with a revenue growth of 5.92% over the last twelve months as of Q2 2024, showcasing its ability to maintain profitability in a tough market.
InvestingPro Tips highlight that Temenos has a commendable track record of raising its dividend for 12 consecutive years, indicating a commitment to shareholder returns even in uncertain times. However, analysts have revised their earnings expectations downwards for the upcoming period, suggesting that the market may need to temper its expectations. Additionally, with a Price / Book ratio of 7.15, the stock may be considered overvalued by traditional valuation metrics.
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