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Tuesday, Wells Fargo (NYSE:WFC) initiated coverage on SAP stock, assigning an Overweight rating and setting a price target of EUR345.00. The firm recognized SAP’s cloud conversion momentum as a key factor likely to drive growth and margin improvements over the next few years, despite broader market uncertainties. SAP’s stock has shown remarkable strength, currently trading at $298.74 and posting a 53.93% return over the past year. According to InvestingPro data, the stock is trading near its 52-week high of $303.39, reflecting strong investor confidence in the company’s strategic direction.
SAP’s strategic focus on cloud migration is expected to account for over 80% of the net new cloud revenue from 2025 to 2027, which is a significant increase from the 60% seen in recent years. This suggests a conservative estimate for contributions from new customer acquisitions and expansions within the existing customer base.
Wells Fargo highlighted two main drivers for SAP’s success in transitioning customers to its S/4HANA platform and now to the cloud: the enhancement of the cloud platform’s extensibility and the evolution of suite offerings, such as RISE and GROW, which include discounting strategies.
The firm’s analysis of the ERP market share revealed SAP’s strong position, particularly among product-centric organizations, where it holds more than a 20% share in supply chain management. Internationally, SAP maintains a roughly 20% share across various ERP sub-categories, including HCM. Conversations with customers and partners suggest that SAP, despite its late entry into the cloud market, has made significant competitive strides and is well-positioned to defend its market share. InvestingPro analysis confirms SAP’s market strength, with the company maintaining impressive gross profit margins of 73.63% and showing consistent revenue growth of 10.51% over the last twelve months. For deeper insights into SAP’s competitive position and 14 additional ProTips, consider exploring InvestingPro’s comprehensive research report.
Wells Fargo also sees SAP undergoing a cultural transformation that aligns with its cloud transition, potentially leading to operating and free cash flow margins of over 30% and 25%, respectively, by 2027. This transformation is expected to reveal SAP’s true earnings potential, which has been obscured by the shift to cloud-based services.
The firm’s price target for SAP stock is supported by a forward-looking valuation of 38 times enterprise value to free cash flow on the next twelve months estimate. This valuation is in line with that of large cap software peers and reflects a unique combination of accelerating growth and margin expansion. SAP’s defense strategy for its cloud transition and the stickiness of its ERP installed base are anticipated to resonate well in the current uneven macroeconomic environment. Wells Fargo’s estimates for SAP include revenues of EUR37.7 billion and EUR41.7 billion, along with free cash flow of EUR8.1 billion and EUR9.7 billion for 2025 and 2026, respectively. Based on InvestingPro’s Fair Value analysis, SAP is currently trading at a premium to its intrinsic value, with a P/E ratio of 53.99x and an EV/EBITDA multiple of 30.39x. Investors seeking detailed valuation metrics and comprehensive analysis can access SAP’s full Pro Research Report, part of InvestingPro’s coverage of over 1,400 top stocks.
In other recent news, SAP SE (ETR:SAPG) reported its first-quarter financial results to the Deutsche Boerse (ETR:DB1Gn) AG, highlighting its performance for the period ending March 31, 2025. The company disclosed a 13% constant currency growth in its Cloud & Software (ETR:SOWGn) segment, though slightly below some analysts’ estimates. Despite this, SAP reaffirmed its forecast for fiscal year 2025, indicating confidence in its business outlook. Analyst Derrick Wood from TD Cowen increased the price target for SAP shares to $320, maintaining a Buy rating, attributing the minor shortfall to delayed deals but expressing optimism about SAP’s prospects.
BMO Capital Markets also updated its outlook on SAP, raising the price target to €320 and maintaining an Outperform rating. Analyst Keith Bachman noted SAP’s better-than-expected March quarter results and improvements in its solution portfolio. BMO Capital expressed confidence in SAP’s strategic direction and potential for growth, especially in cloud services.
Additionally, KeyBanc Capital Markets maintained its Overweight rating and a price target of EUR290, with analyst Jackson Ader highlighting SAP’s ability to navigate currency fluctuations and economic uncertainties. Ader emphasized the company’s resilience and strong Cloud ERP growth, suggesting that SAP’s results exceeded initial concerns. These developments reflect a positive view of SAP’s financial performance and future prospects amid challenging market conditions.
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