Last Update 31 Oct 25
Fair value Increased 12%Pegasystems' analyst price target has been raised from $65.09 to $73.09 per share. Analysts cite strong Q3 results, momentum in cloud migration, and robust sales execution as key drivers supporting this upward revision.
Analyst Commentary
Recent analyst updates reflect broad optimism around Pegasystems' current trajectory and future prospects. The focus remains on cloud migration momentum, strong Q3 results, and the company’s ability to capture further growth opportunities. Notably, price targets have seen upward revisions, highlighting growing confidence in Pegasystems’ execution and long-term positioning.
Bullish Takeaways
- Bullish analysts are raising price targets, citing robust third quarter performance with all reported metrics exceeding consensus estimates.
- Momentum in cloud contract volume is accelerating and reflects successful execution of Pegasystems’ cloud strategy.
- Consensus highlights the company's large opportunity to modernize legacy applications, which could drive sustained long-term growth and upside to current estimates.
- Blueprint adoption, while still in its early phase, is seen as a strategic lever to strengthen future cloud migration and foster additional partner investments.
Bearish Takeaways
- Though recent quarters have been strong, continued execution will be required to maintain sales momentum and meet the higher expectations reflected in updated price targets.
- Analysts remain attentive to the pace of Blueprint adoption, since its full benefits are not yet realized and could influence the outlook if growth slows.
- There is some caution around the ability to consistently outperform consensus as competitive pressures persist within the industry.
What's in the News
- Pega Blueprint announced expanded privacy and security features, including regional data residency in the US, UK, EU, Australia, Japan, and Singapore, as well as dedicated private cloud file storage for clients. (Key Developments)
- Pegasystems completed a share repurchase tranche, buying back 2,675,000 shares (1.56%) for $142.2 million. This brings the total to 24,727,656 shares (15.44%) repurchased since 2008. (Key Developments)
- Pega Infinity '25 is now generally available and offers agentic AI agents for enterprise transformation, enhanced cloud migration, and deeper process automation. (Key Developments)
- Pega Smart Investigate Agentic Automation launched, integrating SWIFT ISO 20022 standards and agentic AI to provide faster and more efficient payment exception management in financial services. (Key Developments)
- Pega introduced a new workflow-powered, agentic approach to customer self-service. This enables organizations to deliver advanced, consistent service experiences across digital and voice channels. (Key Developments)
Valuation Changes
- The consensus analyst price target has increased to $73.09 per share, up from $65.09.
- The discount rate has remained nearly unchanged at 8.45%.
- Revenue growth projections have decreased from 4.38% to 3.40%.
- Net profit margin has improved from 15.40% to 16.62%.
- The future P/E ratio has increased slightly from 47.79x to 48.04x.
Key Takeaways
- Pega's focus on AI and Pega Cloud services is driving revenue growth and client satisfaction, enhancing financial stability and recurring revenue.
- Shareholder value is expected to increase through share repurchases, debt-free status, and optimized capital allocation improving EPS.
- Macroeconomic uncertainties, currency fluctuations, and complex competitive dynamics could impact Pega's revenue stability, growth prospects, and earnings predictability.
Catalysts
About Pegasystems- Develops, markets, licenses, hosts, and supports enterprise software in the United States, rest of the Americas, the United Kingdom, rest of Europe, the Middle East, Africa, and the Asia-Pacific.
- Pega's focus on AI and the Pega Gen AI Blueprint is transforming client engagement by accelerating digital and legacy transformations, potentially driving revenue growth through faster and more effective solution implementation.
- The adoption of agentic workflows and integration with AI models in Pega Blueprint, enabling predictable and streamlined processes, could enhance client satisfaction and retention, thereby improving net margins.
- Strong ACV growth, reflecting client shifts to Pega Cloud services, could lead to increased recurring revenue streams and greater financial stability.
- The company's share repurchase program and debt-free status are expected to enhance shareholder value through increased earnings per share (EPS) and optimized capital allocation.
- Emphasis on Pega Cloud's growth, combined with high client retention and strategic cross-selling/up-selling, is poised to bolster revenue and profitability, supporting overall earnings expansion.
Pegasystems Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming Pegasystems's revenue will grow by 4.2% annually over the next 3 years.
- Analysts assume that profit margins will increase from 13.1% today to 15.4% in 3 years time.
- Analysts expect earnings to reach $292.2 million (and earnings per share of $1.57) by about September 2028, up from $220.2 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 46.2x on those 2028 earnings, up from 44.3x today. This future PE is greater than the current PE for the US Software industry at 36.2x.
- Analysts expect the number of shares outstanding to decline by 0.25% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 8.41%, as per the Simply Wall St company report.
Pegasystems Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- Pega's reliance on forward-looking statements involves inherent risks and uncertainties, which could result in financial outcomes that differ materially from expectations, impacting earnings and revenue forecasts.
- There is a noted volatility in term license revenue driven by accounting principles, which could lead to unpredictable revenue patterns and impact financial stability.
- Currency fluctuations affecting backlog conversion to Pega Cloud revenue could create inconsistency in realizing projected revenues, potentially affecting earnings predictability.
- Macroeconomic uncertainties and customer anxiety in European markets may affect client engagement and sales cycles, potentially impacting future revenue stability and growth prospects.
- The complexity of competing AI solutions and the need for clear value differentiation could pose challenges in market penetration, affecting revenue growth from new client acquisitions.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of $62.682 for Pegasystems 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 $78.0, and the most bearish reporting a price target of just $40.19.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.9 billion, earnings will come to $292.2 million, and it would be trading on a PE ratio of 46.2x, assuming you use a discount rate of 8.4%.
- Given the current share price of $57.01, the analyst price target of $62.68 is 9.0% 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.
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Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
