Pegasystems Inc. (PEGA), a leading provider of enterprise software solutions, beat second-quarter top and bottom-line analyst expectations. The company posted a total revenue of $351.15 million, surpassing the consensus estimate of $324.69 million. Also, its non-GAAP EPS was $0.52 for the second quarter, compared to analysts’ expectations of $0.29.

In the year 2024, Pegasystems introduced numerous ground-breaking, technology-efficient solutions for its diverse customer base. These innovations included Pega GenAI Knowledge Buddy, Pega GenAI Socrates, and Pega GenAI Blueprint. The company also expanded its strategic collaborations with companies like Amazon Web Services (AWS) and broadened its capabilities.

Also, amid the AI boom, the company continues to strive to integrate AI in its solutions. The global artificial intelligence (AI) market was valued at $638.23 billion in 2024 and is expected to total $3.68 trillion by 2034, exhibiting a CAGR of 19.1% from 2024 to 2034.

Alan Trefler, founder and CEO, said, "Our approach to statistical AI and generative AI continues to be a significant differentiator. The offerings we’ve introduced, especially Pega GenAI Blueprint™, have captured the imagination of clients, prospects, and partners, allowing them to identify new possibilities and helping us drive deeper engagement.”

He added, “With tens of thousands of blueprints created over the last few months, we’re identifying opportunities to accelerate growth and creating additional momentum for Pega Cloud®."

Shares of PEGA have gained 11% over the past six months and 70.3% over the past year to close its last trading session at $72.12.

Let’s look at factors that could influence PEGA’s performance in the upcoming months.

Recent Developments

On August 7, PEGA expanded its relationship with Amazon Web Services (AWS), where PEGA will leverage the AWS European Sovereign Cloud to deliver the Pega EU Service Boundary, a solution to help customers meet their most stringent digital sovereignty goals within the European Union (EU).

The new offering of the company will provide EU clients with further digital sovereignty controls.

On July 25, PEGA announced its latest milestone in advancing its federal agency capabilities by achieving FedRAMP® high ready compliance and in-process status with the Department of Veterans Affairs for its Pega Cloud® for government solutions.

Pega Cloud for Government is a fully managed cloud offering the tools, environments, and operational support to empower government agencies in developing applications optimized for government workloads.

Robust Financials

For the second quarter that ended June 30, 2024, PEGA’s total revenue increased 17.7% year-over-year to $351.15 million, of which its subscription services revenue grew 8.8% from the year-ago value to $214.43 million.

Furthermore, the company’s gross profit of $254.21 million indicates growth of 25.8% year-over-year. The company’s non-GAAP net income and EPS came in at $45.84 million and $0.52, up 3711% and 5100% from the prior year’s quarter, respectively.

As of June 30, 2024, PEGA’s cash and cash equivalents stood at $258.26 million, compared to $229.90 million as of December 31, 2023.

Solid Historical Growth

PEGA’s revenue grew at a CAGR of 8.6% over the past three years, while its net income improved at a CAGR of 103.5%. Its EPS increased at a CAGR of 96.6% over the same period, while the company's levered free cash flow grew at a CAGR of 36.3% over the same time frame.

Favorable Analyst Estimates

Analysts expect PEGA’s revenue for the first quarter (ending March 2025) to come in at $355.13 million, indicating an increase of 7.6% year-over-year and the consensus EPS is expected to improve 11.6% year-over-year to $0.54 for the same period. Moreover, the company has surpassed the consensus EPS estimates in all of the trailing four quarters, which is impressive.

For the fiscal year (ending December 2024), the company’s revenue is anticipated to grow 3.5% year-over-year to $1.48 billion, while its EPS is expected to grow 14.7% year-over-year to $2.84.

Favorable Profitability

PEGA’s trailing-12-month gross profit margin of 74.77% is 49.8% higher than the 49.90% industry average. The stock’s trailing-12-month EBIT margin of 12.64% is significantly higher than the industry average of 4.83%. And the stock’s trailing-12-month net income margin of 8.72% is 142.2% higher than the industry average of 3.60%.

Furthermore, the stock’s ROCE, ROTC, and ROTA of 44.72%, 13.43%, and 8.45% favorably compares to the 4.55%, 2.65%, and 2.03% industry average, respectively.

POWR Ratings Appear Optimistic

PEGA’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. PEGA has an A grade for Quality, consistent with its higher-than-industry profitability.

The stock also has a B grade for Growth and Sentiment, which is in sync with its robust financial performance in the last reported quarter and favorable analyst estimates.

PEGA is ranked #3 among the 39 stocks in the B-rated Software - Business industry.

Beyond what I have stated above, we have also given PEGA grades for Stability, Momentum, and Value. Get access to all the PEGA ratings here.

Bottom Line

PEGA reported better-than-expected earnings in the second quarter of fiscal 2024. Further, the company’s long-term prospects appear promising, driven by its innovative product offerings, strategic expansion and investments, and technological innovations.

Given PEGA’s solid revenue growth, promising analysts' expectations, and favorable profitability, supported by advancement in the AI industry and broadening opportunities, it could be ideal to invest in this stock.

How Does Pegasystems Inc. (PEGA) Stack Up Against Its Peers?

While PEGA has an overall POWR Rating of A, investors could also check out these other stocks within the A-rated Software - Business industry with A (Strong Buy) or B (Buy) ratings:

Amdocs Ltd. (DOX), VMware Inc. (VMW), and Yext, Inc. (YEXT)

For exploring more A and B-rated software stocks, click here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

PEGA shares were trading at $73.60 per share on Wednesday afternoon, up $1.48 (+2.05%). Year-to-date, PEGA has gained 50.78%, versus a 20.95% rise in the benchmark S&P 500 index during the same period.

Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.

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