This tech company beat earnings estimates by $0.06 last quarter, but an announced acquisition caused shares to tumble a bit, creating a buying opportunity.
SAP SE (SAP)
From Argus Weekly Staff Report
We are maintaining our BUY rating and $130 target on SAP SE (SAP) following the announcement that the company will acquire Qualtrics International. While SAP again appears to be paying up for an acquisition, we note that it is also ‘buying growth’ given Qualtrics’ 40%-plus projected revenue growth rate, well above SAP’s low single-digit growth.
We believe that SAP will be able to leverage Qualtrics across its own global marketing apparatus, though it may be more difficult to truly integrate SAP’s expertise in transaction data with Qualtrics ‘experience data.’ If this occurs, it could be an important differentiator for SAP as it works to narrow Salesforce.com’s substantial lead in customer relationship management applications.
For now, we are uncertain whether Qualtrics will actually turn the trick for SAP—and the market seems to agree; the shares fell 6% after the announcement, though they have since recouped some of their losses and are now down about 3%.
While SAP again appears to be paying up for an acquisition, we note that it is also ‘buying growth’ given Qualtrics’ 40%-plus projected revenue growth rate, well above SAP’s low single-digit growth.
We are maintaining our 2018 EPS forecast of $5.67 and our 2019 forecast of $6.45.
SAP’s forward enterprise value/EBITDA multiple of 13.3 is 34% below the peer average, greater than the average discount of 26% over the past two years. We are maintaining our BUY rating to a target price of $130. Our target implies a P/E of 20-times our 2019 EPS estimate, well below the peer average of 32.
Jim Kelleher, CFA, Argus Weekly Staff Report, www.argusresearch.com, 212-425-7500, November 21, 2018