Cloud Growth And AI Integration Will Strengthen Competitive Advantages

Key Takeaways

• Strong growth in cloud subscription revenue, coupled with new product launches, indicates increased demand and potential future revenue growth.
  
• Investments in R&D and share repurchase strategies are expected to enhance competitive advantages and support long-term earnings per share growth.
  
• Challenging macro environment, project delays, reliance on existing customers, and volatile foreign exchange rates pose risks to Manhattan Associates' revenue and growth.

Catalysts

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

• Continued growth in cloud subscription revenue, which increased by 33% in Q3, demonstrates strong demand for Manhattan Associates' solutions and is expected to positively impact future revenue and earnings.
  
• The recent launch of the Manhattan Active supply chain planning solution, with significant global interest, is likely to generate additional revenue streams and potentially improve net margins through higher efficiency for clients' operations.
  
• High customer satisfaction and strong win rates, with 70% of deals being won, suggest increased demand and a robust pipeline, which should lead to revenue growth.
  
• The company's investment in R&D and innovation, such as integrating AI capabilities and new offerings like Manhattan Assist, is anticipated to create competitive advantages and support long-term revenue and margin expansion.
  
• Share repurchase activity, with $198 million spent year-to-date and additional authority to buy back shares, might increase earnings per share (EPS) as the reduced share count could lead to higher EPS assuming steady earnings.

Manhattan Associates Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Manhattan Associates's revenue will grow by 10.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 21.4% today to 20.5% in 3 years time.
• Analysts expect earnings to reach $282.3 million (and earnings per share of $4.75) by about December 2027, up from $219.1 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 74.1x on those 2027 earnings, down from 83.8x today. This future PE is greater than the current PE for the US Software industry at 43.0x.
• Analysts expect the number of shares outstanding to decline by 0.94% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.94%, as per the Simply Wall St company report.

Manhattan Associates Future Earnings Per Share Growth

Risks

• The global macro environment remains challenging and could negatively impact demand for Manhattan Associates' solutions and affect future revenues.
  
• Large digital transformational projects have been delayed, which might indicate hesitancy in spending and could impact revenue growth and earnings due to the potential unpredictability in deal closures.
  
• As the macro environment is uncertain, there is risk that implementation deals and services projects might be pushed into future fiscal years, affecting revenue forecasts and margins.
  
• Reliance on existing customers for new bookings (86% of new bookings) could signal slower new customer acquisition, potentially impacting long-term revenue growth.
  
• Volatile foreign exchange rates could affect revenue and RPO growth, impacting financial performance and net margins.

Valuation

• The analysts have a consensus price target of $289.83 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 $195.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $1.4 billion, earnings will come to $282.3 million, and it would be trading on a PE ratio of 74.1x, assuming you use a discount rate of 6.9%.
• Given the current share price of $300.67, the analyst's price target of $289.83 is 3.7% lower. 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.