On Tuesday, Goldman Sachs updated its outlook on Bentley Systems Inc. (NASDAQ: BSY), increasing the price target to $53.00 from the previous $50.00, while keeping a Neutral rating on the stock.
The adjustment follows Bentley Systems' strong fourth-quarter results, which included an Annual Recurring Revenue (ARR) in line with expectations, showing a 12.5% constant currency (CC) increase, and a Free Cash Flow (FCF) that significantly outperformed expectations by over 260% compared to analyst consensus.
The company's subscription revenue was slightly below consensus, attributed mainly to the timing of E365 conversion. Despite this, Bentley Systems adhered to its full-year revenue guidance and projected an 11.75% increase in ARR (CC). The stock experienced a modest decline of 2% as investors considered the sustainability of the company's growth against its premium valuation.
Goldman Sachs noted that the calendar year 2024 ARR guidance is largely in line with the company's performance and market demand trends from the previous year, taking into account certain factors such as the impact of China ARR cannibalization, reduced growth from acquisitions, and an expected decrease in pricing escalators as inflation levels off.
The analyst firm highlighted several positive aspects from Bentley Systems' report: a Net Revenue Retention (NRR) rate consistently at 110% for the sixth consecutive quarter (excluding Russia and China), driven by upgrades to specialized applications; continued momentum in the Small and Medium-sized Business (SMB) segment with over 600 new logos for eight consecutive quarters; and strong forward demand in civil infrastructure, as indicated by expected backlog increases.
While acknowledging the potential for Bentley Systems to meet its targets for 11.75% ARR growth and a margin expansion of over 100 basis points, Goldman Sachs prefers to wait for a more favorable entry point into the stock, given its current valuation, which is roughly 20% higher than comparable design industry peers based on CY25 EV/FCF metrics.
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