On Wednesday, JPMorgan made a bullish move on Trimble Navigation (NASDAQ:TRMB), shifting its stock rating from Neutral to Overweight and increasing the price target to $92 from the previous $74. The upgrade comes ahead of Trimble's Investor Day scheduled for December 10, with the firm citing several key reasons for the optimistic outlook.
According to InvestingPro data, the stock is trading near its 52-week high of $74.56, with 7 analysts recently revising their earnings expectations upward. The current market capitalization stands at $18.06 billion, though InvestingPro's Fair Value model suggests the stock may be slightly overvalued at current levels.
The firm anticipates an acceleration in Trimble's organic growth, driven by a cyclical recovery in hardware and stable software growth. With the Investor Day approaching, JPMorgan expects the company to reveal updated long-term targets, including a higher organic revenue compound annual growth rate (CAGR) and double-digit growth in annual recurring revenue (ARR) and earnings per share (EPS). The optimism appears well-founded, as InvestingPro data shows impressive returns with the stock up 39% year-to-date and 58% over the past year.
The analyst also predicts that Trimble's margin gap with software peers will narrow. This is forecasted to result from a strategic shift towards software/subscription revenues and a focus on cost efficiency. These efforts are expected to contribute to an average margin expansion of approximately 100 basis points per year, potentially reaching a low 30% EBITDA margin over the next five years. Currently, the company maintains a healthy gross profit margin of 66.03%, with EBITDA reaching $737.7 million in the last twelve months.
Furthermore, JPMorgan sees an attractive valuation opportunity for Trimble, considering the wide valuation discount compared to its slowing peers. The firm's analysis suggests that Trimble's anticipated double-digit ARR growth over the coming years should align with that of its peers, while profit margins are projected to continue closing the gap.
For a deeper understanding of Trimble's valuation metrics and growth potential, InvestingPro subscribers can access the comprehensive Pro Research Report, which includes detailed peer comparisons and forward-looking analysis among 14+ additional ProTips.
The upgraded price target of $92 is based on approximately 26 times the forward year one price-to-earnings ratio, using a sum-of-the-parts valuation with a 60/40 mix of Software (ETR:SOWGn) and Hardware/Machinery multiples. This valuation also reflects an expectation of a potential recovery in European freight markets next year, which could serve as an additional growth catalyst for Trimble.
In other recent news, Trimble Inc. is currently under scrutiny by the Nasdaq Stock Market due to non-compliance with filing requirements, potentially facing delisting. However, the company is working closely with Ernst & Young LLP to complete an assessment of its internal controls over financial reporting and plans to appeal the decision. On the earnings front, Trimble reported a solid 14% organic growth in Annual Recurring Revenue (ARR), hitting $2.187 billion, and a record gross margin of 68.5%.
The company's revenue and EPS guidance for the year was updated to $3.645 billion and $2.83, respectively. Analyst firms Piper Sandler and JPMorgan have shown confidence in Trimble's performance, raising their price targets to $84 and $74, respectively.
In a strategic move, Trimble plans to divest its mobility business to focus on high-growth sectors. The company's partnerships with Deere (NYSE:DE) and Caterpillar (NYSE:CAT) aim to enhance technology adoption. These are notable recent developments for Trimble Inc.
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