On Wednesday, Bernstein, a division of SocGen Group, increased its price target on Trimble Navigation (NASDAQ: NASDAQ:TRMB) to $85 from the previous $82, while maintaining an Outperform rating. The firm noted Trimble's transition toward a more software-centric business model following its exit from non-core agricultural and transportation telematics operations within the last year. According to InvestingPro data, analysts maintain a bullish stance on TRMB, with consensus targets ranging from $77 to $92.
The shift has resulted in software and services now representing 75% of Trimble's sales, up from approximately 55% in 2019. This change has significantly impacted the company's financials, improving gross margins from 58% to 70%. Current gross margins stand at 66.03%, according to InvestingPro data. Bernstein projects that continued growth could further increase these margins to 74% by 2027 and potentially 80% in the following decade.
Trimble's new go-to-market strategy has shown to be effective, with the company completing its digital transformation and reorganizing its sales force. This has led to increased cross-selling, which the analyst believes could add an additional $1.4 billion by around 2027, nearly 50% of projected 2024 revenues. This strategy is also expected to be margin accretive.
The company's expansion in Field Systems through more OEM partnerships beyond Caterpillar (NYSE:CAT) and the application of machine control technology in more products, coupled with changes to its distribution model, positions Trimble to outpace a market that is only 25% penetrated. These strategic moves are believed to lead to a permanent step change in Trimble's operating model.
Predictions for organic growth are set at 7-9%, up from the previous 5-8%, with low-to-mid teens Annual Recurring Revenue (ARR) growth and approximately 35% incremental margins. These figures imply a post-forecast 2025 EPS of $2.83 and $3.68 in 2027, equating to a more than 14% EPS compound annual growth rate.
The company's strong momentum is reflected in its impressive 54.27% return over the past year, with the stock currently trading near its 52-week high of $76.97. Bernstein justifies a higher 30x multiple on the stock, up from 27x, based on Trimble's structurally improved gross margin profile. For deeper insights into Trimble's valuation and growth metrics, access the comprehensive Pro Research Report available on InvestingPro.
In other recent news, Trimble has been the focus of analyst upgrades with JPMorgan shifting its stock rating from Neutral to Overweight and increasing the price target to $92. Piper Sandler also showed confidence in Trimble by raising the stock's price target to $84. This comes after Trimble reported a solid 14% organic growth in Annual Recurring Revenue (ARR), hitting $2.187 billion, and a record gross margin of 68.5%.
Despite the positive outlook, Trimble is currently under scrutiny by the Nasdaq Stock Market due to non-compliance with filing requirements, potentially facing delisting. 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.
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 aim to enhance technology adoption.
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