Roper Technologies (NYSE:ROP) was lifted to Outperform from Market Perform at Bernstein on Tuesday, with analysts raising the firm's price target on the stock to $525 from $490 in a note to clients.
The firm said it is upgrading the stock based on more organic growth, better M&A prospects, and, eventually, multiple expansion following the company's investor day.
"We believe we can reduce Roper's compounding model to two key levers: (1) organic FCF growth, and (2) multiples paid to acquire cash," said the analysts. "We think both are set to improve, supporting the long-term mid-teens FCF growth target."
"We have watched Roper steadily improve its long-term organic growth profile, (~6% today vs ~4% pre-transformation). Ex-divestments, this is a small step up from their pre-COVID performance, and we think pricing power across Roper's unique markets would take the edge of a slowdown," he added. "With 45% incrementals, 6% sales growth flows through at a HSD FCF organic growth rate."
Furthermore, the analysts explained that if Roper can compound cash in the mid-teens, "they look cheap vs software peers." However, Bernstein thinks it "will take time for Roper to re-rate."
"There is no near term catalyst, but patient investors should be rewarded," the analysts concluded.