On Wednesday, BMO Capital Markets adjusted its outlook on SAP AG (NYSE:SAP) shares, reducing the price target to $300 from the previous $307 while maintaining an Outperform rating. The adjustment comes amid a recognition of the high visibility of SAP’s revenue, particularly due to cloud conversions, which has been a strong point for the company. According to InvestingPro data, SAP’s revenue grew 9.51% over the last twelve months, with the stock currently trading at an EV/EBITDA multiple of 29.55x, suggesting rich valuation levels.
Keith Bachman, an analyst at BMO, expressed continued support for SAP’s business trajectory, citing the company’s improving technology platform as a key factor. The company’s strong performance is reflected in its impressive 46.4% return over the past year, as reported by InvestingPro. Despite the positive outlook, Bachman acknowledged the potential impact of a weakening macroeconomic environment on SAP. However, he remains confident in the company’s free cash flow (FCF) estimates, suggesting there could be room for upside potential, supported by SAP’s healthy levered free cash flow of $4.58 billion.
Bachman clarified that BMO’s financial estimates for SAP remain unchanged except for the current cloud backlog growth. The decision to lower the price target reflects a cautious stance in light of broader economic concerns, yet the firm’s Outperform rating signals a belief in SAP’s ongoing business strength. This confidence is supported by InvestingPro’s Financial Health Score of "GOOD," with particularly strong marks in profitability metrics.
In his commentary, Bachman stated, "High Visibility, Weakening Macro (BCBA:BMAm); We continue to like the SAP story given the improving technology platform and high visibility to revenues given cloud conversions." He added, "Nevertheless, we do not think SAP is immune from the weakening macro backdrop, though we continue to believe that our FCF estimate has upside tension."
While SAP has been removed from BMO’s top pick, the firm’s outlook remains largely positive. The price target adjustment to $300 reflects a nuanced view that balances SAP’s internal progress with external economic challenges. Bachman’s comments suggest a careful yet optimistic perspective on SAP’s ability to navigate a shifting economic landscape. Investors should note that SAP’s next earnings report is scheduled for April 22, 2025. For deeper insights into SAP’s valuation and growth prospects, including 12 additional ProTips and comprehensive financial analysis, check out the full Pro Research Report available on InvestingPro.
In other recent news, SAP AG has been the focus of several analyst evaluations and strategic developments. Stifel analysts increased their price target for SAP from EUR265 to EUR300, maintaining a Buy rating due to confidence in SAP’s transition of legacy ERP customers to its RISE with SAP offering, which is expected to boost cloud revenues. Meanwhile, TD Cowen reaffirmed a Buy rating with a $310 target, emphasizing SAP’s growth prospects and margin expansion, particularly in the European market. JMP Securities also maintained a Market Outperform rating with a $330 price target, citing SAP’s successful RISE program and its potential for capturing a larger market share in the expanding total addressable market.
BMO Capital adjusted its price target for SAP to $300 from $307, retaining an Outperform rating while noting the company’s solid fundamentals and cloud business momentum despite economic challenges. Additionally, SAP is set to introduce an AI agent service in Japan, aimed at assisting businesses with tasks like managing customer complaints. This service will be integrated into SAP’s existing enterprise resource planning system. These developments underscore SAP’s strategic focus on cloud and AI technologies as it seeks to enhance its market position and drive growth.
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