IIIV: Margin Expansion And Public Sector Focus Will Support Upside

Analysts have trimmed their price targets on i3 Verticals to reflect a lower fair value estimate of about $31, while still citing expectations for revenue growth, improving profit margins, and a more moderate future P/E profile around 31x.

Analyst Commentary

Recent Street research on i3 Verticals points to a mixed but constructive view, with price targets reduced to align with a lower fair value estimate around US$31, while still recognizing potential for growth and margin improvement.

Bullish Takeaways

Bullish analysts point to expectations for continued revenue growth as a key support for the updated price targets, even after trimming their fair value assumptions.
Improving profit margins are viewed as an important part of the story, with analysts seeing room for earnings quality to better reflect the current business mix over time.
The anticipated P/E profile around 31x is seen by bullish analysts as acceptable for a company that is still investing in its platform and pursuing expansion in its core markets.
Some bullish commentary suggests that, despite lower targets, the reset may create a cleaner setup for future execution to show through more clearly in the share price.

Bearish Takeaways

Bearish analysts focus on the reduced price targets themselves, viewing them as a signal that prior expectations for value creation may have been too optimistic.
The implied P/E of roughly 31x is seen by cautious analysts as demanding, which could limit upside if revenue or margin trends do not track current expectations.
There is concern that execution needs to be consistently strong to justify the updated fair value, given the balance between growth investments and profitability.
Some bearish views reflect the risk that any slowdown in revenue momentum or delay in margin improvement could put additional pressure on future valuation resets.

What's in the News

The company completed a share repurchase of 1,522,838 shares, representing 6.35% of its shares, for a total of US$37.89 million under the buyback announced on August 7, 2025 (Key Developments).
From October 1, 2025 to December 31, 2025, the repurchase activity covered the full 1,522,838 shares, marking the completion of that buyback tranche (Key Developments).
i3 Verticals, Inc. revised earnings guidance for the fiscal year ending September 30, 2026, with revenue now guided to US$223,000 to US$234,000, compared with prior guidance of US$217,000 to US$232,000 (Key Developments).

Valuation Changes

Fair Value was trimmed from $34.17 to $31.33, reflecting a modest reduction in the modeled valuation level.
The Discount Rate was adjusted slightly lower from 8.45% to 8.41%, indicating a marginal change in the assumed risk profile.
Revenue Growth was revised upward from 7.18% to 8.30%, signaling higher modeled top line expansion in future periods.
The Net Profit Margin was raised from 6.31% to 7.98%, pointing to a higher expected share of revenue converting into earnings.
The Future P/E was reduced from 65.81x to 31.35x, implying a lower valuation multiple applied to projected earnings.

Strong demand for AI-powered public sector software and ongoing innovation drive revenue growth, customer retention, and improved margins through modernization and higher client wallet share.
Focus on high-barrier government verticals and disciplined acquisitions ensures stable, recurring revenues and scalable growth with operational and financial flexibility.
Growing focus on public sector software heightens exposure to revenue volatility, margin pressure, and competitive risks amid sector-specific uncertainties and evolving regulatory or technological landscapes.

Catalysts

About i3 Verticals

i3 Verticals, Inc. builds, acquires, and grows software solutions in the public sector and healthcare vertical markets in the United States and Canada.What are the underlying business or industry changes driving this perspective?

Increasing digitization initiatives among state and local governments are driving sustained demand for integrated public sector software solutions, as evidenced by double-digit revenue and SaaS growth for i3 Verticals, supporting continued organic revenue and ARR growth.
i3 Verticals' deepening integration of AI and automation into its software products to modernize public sector operations (e.g., document analysis, support automation, development efficiency) both increases customer retention via higher switching costs and improves gross margins by boosting operational efficiency.
A singular focus on high-barrier public sector verticals (education, utilities, transportation, justice/public safety) positions i3 Verticals to benefit from multi-year enterprise system upgrades and recurring, contractually escalated revenues, supporting both revenue visibility and expanding net margins.
Ongoing product innovation and cross-selling of new modules (Justice Tech, transportation kiosks, utility ePortals, education platforms), alongside market expansion in new states, directly increase wallet share per client and drive top-line growth.
A robust, debt-free balance sheet and large revolving credit facility enable disciplined pursuit of strategic "tuck-in" acquisitions-allowing for scalable, inorganic revenue and EBITDA growth while maintaining long-term earnings accretion.

i3 Verticals Earnings and Revenue Growth

i3 Verticals Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming i3 Verticals's revenue will decrease by 1.0% annually over the next 3 years.
Analysts assume that profit margins will increase from -22.2% today to 15.2% in 3 years time.
Analysts expect earnings to reach $36.6 million (and earnings per share of $0.91) by about September 2028, up from $-55.0 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 42.5x on those 2028 earnings, up from -12.8x today. This future PE is greater than the current PE for the US Software industry at 36.6x.
Analysts expect the number of shares outstanding to grow by 1.57% 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.

i3 Verticals Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

i3 Verticals' increasing concentration in the public sector-especially government, utilities, and education-exposes the company to sector-specific budget cycles, procurement delays, and potential political or regulatory shifts, which could introduce long-term revenue volatility and dampen top-line growth.
The company's strategy to invest heavily in talent and product development ahead of anticipated revenue opportunities (particularly in Justice Tech) increases near-term cost structure; if projected growth does not materialize as expected, this could compress margins and negatively impact earnings.
Reliance on recurring but sometimes variable software license and professional services sales, which are subject to quarter-to-quarter swings, introduces unpredictability in revenue streams and makes long-term financial planning and forecasting challenging-potentially leading to investor skepticism and lower valuation multiples.
Rapid advancements in technology, ongoing commoditization of vertical SaaS markets, and increasing competition from larger tech firms or more agile fintechs could render i3 Verticals' solutions less competitive over time, risking customer attrition, slower ARR growth, and heightened pricing pressure that squeeze net margins.
The shift to a pure-play public sector software model, while creating focus, reduces diversification and increases exposure to changes in public sector IT spending priorities or regulatory actions, potentially amplifying risks to both revenue stability and earnings resilience over the long term.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $37.0 for i3 Verticals 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 $40.0, and the most bearish reporting a price target of just $30.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $240.9 million, earnings will come to $36.6 million, and it would be trading on a PE ratio of 42.5x, assuming you use a discount rate of 8.4%.
Given the current share price of $29.42, the analyst price target of $37.0 is 20.5% higher.
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.

Digitization And AI Will Boost Public Sector Expansion