On Friday, KeyBanc Capital Markets provided insights into the Vertical Software (ETR:SOWGn), Human Capital Management (HCM), and DevOps sectors for the year 2025. Analyst Jason Celino expressed a generally positive outlook across these sectors, despite a challenging 2024 where only three out of 22 companies outperformed the Nasdaq.
Celino highlighted DevOps as the most promising sector, anticipating IT budget growth and paid-seat expansion stabilization. For investors seeking deeper insights into these sectors, InvestingPro offers comprehensive analysis and valuation metrics across software companies.
Celino also expressed confidence in Vertical Software, particularly in Electronic Design Automation (EDA), despite ongoing debates about China. The construction sector is expected to recover, even though interest rates have not decreased. However, Celino advised caution regarding sectors with exposure to automotive and manufacturing. In HCM, growth expectations are considered reasonable, but it may be premature to expect sector-wide acceleration.
KeyBanc highlighted several companies as key names for 2025. ServiceTitan (TTAN) was noted as a high conviction idea within Vertical Software. The company, which operates in the under-digitized trades industry, benefits from limited competition and a large serviceable addressable market (SAM) of $13 billion. Positive factors such as gross retention rates and potential estimate revisions could drive growth above 20%.
Cadence Design Systems (NASDAQ:CDNS) is seen as a potential growth accelerator, supported by strong demand trends and the introduction of new hardware (Z3/X3 boxes) announced on April 17, 2024. GitLab (GTLB) is viewed positively due to its positioning in the DevOps landscape, with incremental growth drivers anticipated for 2025. Autodesk (NASDAQ:ADSK) is expected to focus on margin improvement and free cash flow (FCF) growth, with a large number of multi-year deals up for renewal.
KeyBanc downgraded AppFolio (APPF) to Sector Weight, indicating a neutral stance on the company’s stock. Despite the downgrade, InvestingPro data shows AppFolio maintains strong fundamentals with 33% revenue growth and a healthy 65% gross margin. The company’s current trading price aligns closely with its Fair Value, while maintaining a "GREAT" financial health score. This adjustment reflects a recalibration of expectations for the company within its sector.
The changes in ratings and price targets by KeyBanc are based on the firm’s analysis and expectations for the aforementioned companies’ performance in the upcoming year. InvestingPro subscribers have access to 14 additional key insights about APPF, including detailed valuation metrics and growth forecasts in the comprehensive Pro Research Report.
In other recent news, AppFolio Inc. (NASDAQ:APPF) has been a subject of interest among analysts and investors alike. KeyBanc Capital Markets recently downgraded AppFolio’s stock rating from Overweight to Sector Weight, following a review of the company’s near-term growth prospects. This decision came despite AppFolio’s strong financial health score and a robust revenue growth of 33% over the last twelve months.
On the other hand, financial services firm Stephens has maintained its Overweight rating on AppFolio, expressing confidence in the company’s performance and potential. Stephens highlighted AppFolio’s significant margin improvement and forecasted a strong fourth quarter for 2024, with revenue guidance surpassing consensus estimates.
In terms of earnings and revenue, AppFolio reported a 24% year-over-year growth in its third-quarter revenue to $206 million. The company also raised its full-year revenue guidance to between $786 million and $790 million, anticipating a 27% growth rate. These developments are attributed to the introduction of innovative AI-driven tools and the strategic acquisition of LiveEasy.
Meanwhile, shares of AppLovin (NASDAQ:APP) and The Trade Desk Inc . (NASDAQ:TTD) experienced a dip after not being included in the latest S&P 500 Index rebalance. Despite these market reactions, both companies continue to be significant players in their respective sectors.
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