On Tuesday, Piper Sandler expressed optimism about Trimble Inc. (NASDAQ: TRMB), increasing the company's price target to $73 from $68. The firm sustained its Overweight rating on the stock. The adjustment follows Trimble's announcement that it will conduct a conference call in the upcoming weeks to discuss its new reporting structure, which will include two years of historical financials and a foundation for its 2024 guidance.
The analyst from Piper Sandler highlighted several key insights based on Trimble's preliminary disclosure during the fourth-quarter 2023 earnings call. Firstly, Trimble is expected to be among the top three businesses in the Architecture, Engineering, Construction, and Operations (AECO) software sector, with projected revenues of $1.3 billion for fiscal year 2024, boasting a high recurring revenue mix of 95%.
Additionally, the EBITDA margins for Trimble's AECO segment are anticipated to be in the mid-20% range. This estimate is drawn from the assumption that the Civil Construction unit, which is transitioning into Field Systems, has a low-30% margin. Furthermore, the Buildings & Infrastructure division reported an Annual Recurring Revenue (ARR) growth of just under 20% in 2023, suggesting that the AECO business could experience a mid-teens or higher growth rate in 2024.
The analyst also noted that Trimble's AECO business aligns with the "Rule of 40," a benchmark indicating that a software company's combined growth rate and profit margin should exceed 40%. Considering the industry average EBITDA multiple of 30 times for vertical software companies that meet this rule, the AECO business, with its EBITDA surpassing $325 million, could be valued at approximately $10 billion.
Trimble's forthcoming conference call is expected to provide a comprehensive review of the company's financial trajectory and strategic positioning within the AECO software market, as per the initial information shared by the company.
InvestingPro Insights
As Trimble Inc. (NASDAQ: TRMB) prepares to unveil its new reporting structure, recent data and analysis from InvestingPro offer additional context for investors considering the company's stock. Trimble's market capitalization stands at $15.69 billion, reflecting its significant presence in the industry. Moreover, the company's P/E ratio, a key indicator of market expectations about growth and profitability, is currently at a high of 50.53. This suggests that investors are anticipating future earnings growth, despite the company's earnings multiple trading at elevated levels.
InvestingPro Tips indicate that Trimble's stock is currently in overbought territory according to the Relative Strength Index (RSI), which may suggest a period of consolidation or pullback could be on the horizon. Additionally, with the stock trading near its 52-week high and showing strong returns over the last month and three months, at 14.9% and 30.67% respectively, investor sentiment appears to be positive. It's worth noting that Trimble does not pay a dividend, which might be a consideration for income-focused investors.
For those seeking deeper insights, InvestingPro offers additional tips on Trimble, which could provide further clarity on the stock's performance and potential. By using the coupon code PRONEWS24, readers can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription to access these valuable tips. Currently, there are over 10 additional InvestingPro Tips available for Trimble Inc., which could help investors make more informed decisions.
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