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PTC stock downgraded as Berenberg cites slowing ARR growth in tough markets

EditorEmilio Ghigini
Published 01/11/2024, 10:10
PTC
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On Friday, Berenberg issued a downgrade for PTC Inc. (NASDAQ: NASDAQ:PTC), changing its stock recommendation from Buy to Hold. The firm also adjusted the price target for the company's shares to $210 from a previous $196. This revision reflects concerns about the ongoing macroeconomic challenges impacting PTC's primary markets, which include aerospace and defense, as well as automotive sectors.

The analyst from Berenberg highlighted that the macro headwinds in PTC’s core end-markets have not shown signs of stabilization. Instead, these challenges appear to be intensifying, as evidenced by reports from several of PTC’s peers who have experienced increased pressure in the past quarter, leading them to lower their near-term forecasts.

Despite acknowledging PTC's relative resilience in a tough macro climate, the analyst expressed caution. The revised growth outlook is now set at a 10.8% compound annual growth rate (CAGR) for annual recurring revenue (ARR) in constant currency terms through fiscal year 2027. This is a decrease from the previously projected 12% CAGR. As a result of this adjustment, the analyst anticipates an approximate 3% reduction to PTC's earnings per share (EPS) and free cash flow (FCF) over the next three years.

The new price target of $196 represents a downward revision from the prior target of $210. The analyst concluded that the potential for upside in PTC shares, based on the new price target, is not sufficiently attractive to maintain a Buy rating, leading to the decision to downgrade the stock to Hold.

In other recent news, PTC Inc. reported an 11.5% year-over-year growth in annual recurring revenue, aligning with expectations, and a 19% increase in operating cash flow and free cash flow. The company also entered into a strategic collaboration with Amazon (NASDAQ:AMZN) Web Services to enhance its Onshape cloud-native computer-aided design offerings. On the leadership front, PTC Inc. welcomed Robert Bernshteyn, a General Partner at ICONIQ Capital, to its Board of Directors.

Baird, BMO Capital, and Loop Capital have all demonstrated confidence in PTC, maintaining Outperform and Buy ratings respectively, while Mizuho Securities downgraded the stock from Buy to Neutral. Baird is optimistic about PTC's prospects, increasing its price target based on partner feedback and market analysis. BMO Capital anticipates PTC will achieve its cash generation objectives despite potential near-term pressures, while Loop Capital acknowledges PTC's resilience amid macroeconomic challenges.

These are recent developments that investors should be aware of. The company's mid-term annual recurring revenue growth forecast has been revised to low double digits, reflecting current market conditions. These recent developments indicate PTC Inc.'s strategic focus on disciplined execution and resource allocation.

InvestingPro Insights

PTC Inc.'s financial metrics and market position offer additional context to Berenberg's recent downgrade. According to InvestingPro data, PTC boasts impressive gross profit margins of 79.81% for the last twelve months as of Q3 2024, indicating strong pricing power and efficient cost management despite the macroeconomic challenges mentioned in the analyst report.

However, the company's P/E ratio of 74.8 suggests it's trading at a high earnings multiple, which aligns with Berenberg's cautious stance on the stock's upside potential. This valuation metric, combined with PTC trading near its 52-week high (95.41% of the high), supports the analyst's decision to revise the rating from Buy to Hold.

InvestingPro Tips highlight that PTC has been profitable over the last twelve months and analysts predict continued profitability this year. This resilience in earnings supports the analyst's observation of PTC's relative strength in a tough macro climate. Additionally, PTC's strong return over the last five years indicates a history of delivering value to shareholders, which may provide some reassurance to investors despite the current market headwinds.

For readers interested in a deeper analysis, InvestingPro offers 11 additional tips for PTC, providing a more comprehensive view of the company's financial health and market position.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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