By Sam Boughedda
Goldman Sachs analysts upgraded Tyler Technologies (NYSE:TYL) and PowerSchool Holdings, Inc. (NYSE:PWSC) to Buy from Neutral in a note Tuesday.
The analysts, who assigned a $424 price target on TYL and a $24 price target on PWSC, told investors that the firm "view the resiliency of the government end market as particularly attractive over the next 12 months, given ongoing macro volatility and a less predictable fundamental outlook in enterprise software."
In addition, they see positive catalysts for the stock, such as 2023 being a trough year for margins for TYL and a steady improvement in NRR for PowerSchool.
For Tyler, the analysts states that the trough year for margins is driven by the ongoing transition to cloud from on-premise.
"As Tyler drives forward a cloud-first model, we expect this to accelerate its sales cycles and its R&D efficiency, relative to the last 3 years. We expect Tyler's Analyst Day and the introduction of a 2030 model to give investors visibility into >800bps higher operating margins post the cloud transition," said the analysts.
Meanwhile, the steady improvement in NRR for PWSC is "driven by enhancements to the Unified Platform, leading to a 'single pane of glass' integrating PowerSchool's products that will be more valuable to customers."
"In addition, we expect to see milestones in international that could ultimately drive a 100-200bps tailwind to revenue, likely driving organic growth consistently over 10%," the analysts wrote.