AI And Goldman Sachs Collaboration Will Expand Market Reach

Key Takeaways

• AI-driven automation, expanded partnerships, and a shift to cloud-based recurring revenue are driving higher profitability, revenue stability, and market expansion.
  
• Increased demand for integrated HR solutions, improved commercial execution, and a robust sales pipeline support long-term growth and greater earnings visibility.
  
• Slowed new business, weak project demand, and flat client growth, coupled with dependence on large clients and uncertain returns on investments, threaten revenue stability and margin expansion.

Catalysts

A technology-enabled services company worldwide.

• Adoption of AI-enabled automation and data analytics is improving operational efficiency and enhancing client experience, demonstrated by reduced call volumes and margin expansion, which should drive continued net margin improvement and higher profitability.
  
• Expanding partnerships-such as the new alliance with Goldman Sachs Asset Management-are expected to unlock new recurring revenue streams (e.g., wealth management products) and broaden Alight's addressable market, contributing to future revenue growth.
  
• Ongoing shift to high-margin, cloud-based, recurring revenue models (over 93% of revenue is now recurring), along with increased wallet share from service expansions in large client renewals, is likely to support revenue stability and further margin expansion over time.
  
• Rising complexity in workforce regulations and growing employer focus on employee well-being and financial wellness is increasing demand for integrated, scalable HR solutions like Alight's, supporting long-term revenue growth potential.
  
• A strong pipeline (with late-stage opportunities up 35% year-over-year), combined with strengthened commercial execution and new domain talent, positions Alight to accelerate bookings growth and improve earnings visibility as deal closure rates rebound.

Alight Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Alight's revenue will grow by 3.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from -47.8% today to 5.6% in 3 years time.
• Analysts expect earnings to reach $142.2 million (and earnings per share of $0.17) by about September 2028, up from $-1.1 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 38.6x on those 2028 earnings, up from -1.9x today. This future PE is greater than the current PE for the US Professional Services industry at 26.1x.
• Analysts expect the number of shares outstanding to decline by 0.68% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.88%, as per the Simply Wall St company report.

Alight Future Earnings Per Share Growth

Risks

• Prolonged and increasingly complex sales cycles, combined with execution challenges in commercial operations, have delayed new client signings and upsell opportunities, which may lead to persistent revenue timing headwinds and slower top-line growth if not fully resolved.
  
• Project revenues have declined by 20% year-over-year and show no signs of near-term recovery, as clients delay or reassess nonrecurring initiatives, limiting opportunities for incremental revenue and pressuring overall growth targets.
  
• Flat participant counts and volumes, despite previous expectations of moderate growth, indicate possible saturation in core markets or limited expansion of employer clients, constraining revenue and long-term scalability.
  
• Alight's reliance on expanding wallet share with existing large enterprise clients and Fortune 500 companies increases vulnerability to client concentration risk, which could negatively impact future revenue stability and margin predictability if retention or expansion slows.
  
• Continued investments in transformation initiatives, domain expertise hiring, technology (AI, automation), and strategic partnerships may not yield anticipated cost synergies or higher margins, posing a risk to net margin expansion and future earnings if additional profitability is not realized.

Valuation

• The analysts have a consensus price target of $8.214 for Alight 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 $11.0, and the most bearish reporting a price target of just $6.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.5 billion, earnings will come to $142.2 million, and it would be trading on a PE ratio of 38.6x, assuming you use a discount rate of 8.9%.
• Given the current share price of $3.92, the analyst price target of $8.21 is 52.3% 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.