By Shares of Progress Software (NASDAQ: PRGS) surged to near all-time highs in pre-market trading today, jumping over 6% following the release of its impressive Q3 2024 earnings results yesterday.
The company posted adjusted earnings per share (EPS) of $1.26, surpassing Wall Street’s estimates by $0.12 and marking a 17% increase compared to the same quarter last year.
Revenue for the quarter came in at $179 million, up 2.3% year-over-year, also beating analysts’ expectations by over $3 million.
These results, coupled with an improved full-year outlook, have bolstered investor confidence, pushing the stock price higher.
Progress Software raises forward guidance
Progress Software also updated its guidance for fiscal year 2024, raising its EPS expectations to a range of $4.75 to $4.85 from the previous $4.70 to $4.80.
Revenue projections were similarly raised to $745 million–$755 million, up from the prior $725 million–$735 million range.
This increase factors in the expected contribution from the company’s recent acquisition of ShareFile, a document-centric collaboration platform from Cloud Software Group, for $875 million.
ShareFile is anticipated to add over $240 million in annual revenue and annual recurring revenue (ARR), further strengthening Progress’s already solid revenue base.
In terms of cost management, the company has continued its disciplined approach, reducing total costs and operating expenses by $3 million year-over-year to $105 million.
Progress’s non-GAAP operating margin for Q3 stood at an impressive 41%, compared to 39% in the same period last year, highlighting the company’s operational efficiency.
This margin expansion is particularly notable as it reflects both top-line growth and prudent expense control.
ShareFile acquisition to bolster SaaS offerings
The ShareFile acquisition, which is expected to close by the end of fiscal 2024, is seen as a strategic move to enhance Progress’s SaaS offerings.
The acquisition will add 86,000 customers to its portfolio and is expected to bolster the company’s position in the AI-powered infrastructure software market.
Progress’s management has emphasized that this deal will be transformative, positioning the company to hit nearly $1 billion in total annual revenue and over $800 million in ARR.
Despite these strong fundamentals, some concerns remain around the short-term impact of the ShareFile acquisition on the company’s balance sheet.
The acquisition will be financed through a combination of cash and Progress’s existing revolving credit facility, pushing the company’s net debt to around $700 million by the end of the next quarter.
While this adds leverage, management’s decision to suspend its quarterly dividend in favor of debt repayment and future share buybacks signals a clear focus on long-term financial health.
Progress Software stock valuation
In terms of valuation, Progress Software is currently trading at approximately 11x next year’s expected free cash flow.
The company’s free cash flow has been consistently robust, with management forecasting $205 million for fiscal 2024, slightly down from previous estimates of $215 million due to the acquisition.
However, ShareFile is expected to turn cash-flow positive within the next fiscal year, which could drive stronger free cash flow performance in 2025.
Given the company’s growth trajectory and the successful integration of ShareFile, Progress may be trading at an attractive multiple for long-term investors.
The broader market environment does pose some challenges, particularly with large competitors like Microsoft and IBM offering similar enterprise software solutions.
However, Progress’s ability to grow both organically and through acquisitions demonstrates its resilience.
Considering the company’s robust financial results, optimistic guidance, and strategic initiatives, investors may view Progress Software as an attractive opportunity.
The stock’s recent ascent to near all-time highs reflects market confidence, but the question remains: Is there further upside potential?
Let’s delve into the technical aspects to assess the stock’s future price trajectory.
Two resistances nearby
Following today’s jump, shares of ShareFile are set to open near $59.7, a resistance level from where they have retraced twice this year.
Source: TradingView
If the stock manages to surpass that level, it will again face a resistance nearby near $62.2, which was the all-time high it had made last year.
Considering how close these two resistance levels are to where the stock would be opening today, investors bullish on the stock and want to buy it must exercise some caution.
If the stock manages to give a daily closing above $59.7 today, investors can initiate a small long position with a stop loss at $54.04.
They can add to their long positions if the stock breaches its all-time highs in the coming weeks.
Traders who have a bearish outlook on the stock must watch today’s price action closely but must refrain from shorting the stock if it trades and closes above $59.7. A short position should only be considered if the stock fails to cross this mark and falls back to the $57.2 level.
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