Active Supply Chain Planning And Point-of-Sale Advancements Will Strengthen Future Market Position

Key Takeaways

• Anticipated cloud revenue growth driven by customer acquisitions and cloud conversions signals a strategic shift toward more scalable business models, enhancing profitability.
  
• Heavy R&D investments in innovations aim to expand market share, increasing revenue potential while affirming competitive leadership in key areas such as omnichannel management.
  
• Financial performance faces challenges from global turbulence, budget constraints, reduced services revenue, and the need for increased R&D amid rising competition.

Catalysts

Develops, sells, deploys, services, and maintains software solutions to manage supply chains, inventory, and omni-channel operations.

• Manhattan Associates anticipates 20% plus cloud subscription revenue growth over the next several years, driven by new customer acquisitions, conversions of on-premise customers to the cloud, and cross-selling into a growing product portfolio. This is expected to significantly boost revenue.
  
• The company is investing heavily in research and development, nearly $138 million in 2024, with innovations like Manhattan Active Supply Chain Planning and new advancements in point-of-sale and supply chain execution. These innovations are expected to expand the total addressable market, potentially enhancing earnings and market share.
  
• The planned increase in cloud revenue is expected to surpass services revenue by the end of 2026, marking a pivotal transition that may enhance net margins through a more scalable and profitable business model.
  
• Despite a near-term slowdown in professional services revenue, a strong pipeline of new service implementation projects in 2025 is expected to drive sequential revenue growth, contributing to future cash flow and potentially higher long-term earnings.
  
• Recognition as a leader in both point-of-sale and omnichannel order management by Forrester is anticipated to enhance the competitive position and could drive higher win rates, positively impacting future revenue streams and operating profit margins.

Manhattan Associates Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Manhattan Associates's revenue will grow by 10.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 21.4% today to 20.0% in 3 years time.
• Analysts expect earnings to reach $274.3 million (and earnings per share of $4.73) by about January 2028, up from $219.1 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $232.7 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 78.1x on those 2028 earnings, down from 82.3x today. This future PE is greater than the current PE for the US Software industry at 43.6x.
• Analysts expect the number of shares outstanding to decline by 1.69% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.95%, as per the Simply Wall St company report.

Manhattan Associates Future Earnings Per Share Growth

Risks

• The turbulent global macro environment and foreign exchange headwinds could materially impact financial performance, notably affecting revenue and earnings.
  
• A reduction in services revenue is anticipated due to budgetary constraints among customers, impacting overall revenue growth in the near term.
  
• Delays and reductions in service implementations by about 10% of customers may lead to a slowdown in services revenue in 2025, thus affecting net margins.
  
• The pressure on budgets and the reduction in planned services spending could result in lower-than-expected earnings as customers adjust their financial commitments.
  
• Rising competition and the necessity of continuous innovation demand significant R&D expenditure, which could affect profit margins if not offset by corresponding revenue gains.

Valuation

• The analysts have a consensus price target of $302.03 for Manhattan Associates based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $326.0, and the most bearish reporting a price target of just $247.3.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.4 billion, earnings will come to $274.3 million, and it would be trading on a PE ratio of 78.1x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $295.1, the analyst's price target of $302.03 is 2.3% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.