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Dassault Systèmes is set for a turnaround after a difficult 2024, with analysts at Berenberg upgrading the stock to "buy" from "hold."
The brokerage has also raised its price target for the company to €44.40 from €36, citing strong growth drivers and a favorable valuation.
The French software company, known for its 3DEXPERIENCE platform and Medidata Solutions unit, faced a turbulent 2024 due to macroeconomic headwinds and a slowdown in key end-markets such as aerospace, automotive, and life sciences.
This led to a rare two-time downward revision of full-year guidance. However, Berenberg sees 2025 as an inflection point, with the company poised to return to sustainable growth.
One of the key drivers of the expected rebound is the recovery of Medidata Solutions, which struggled in 2024 amid a post-pandemic correction in clinical trial activity.
Berenberg’s research indicates that the business will not only return to growth in 2025 but also accelerate in subsequent years.
Analysts expect Medidata to contribute 1.3 percentage points to Dassault’s overall revenue growth in 2025, increasing to 2.2 percentage points by 2027.
Positive feedback from industry sources supports this outlook, with the number of new clinical trial starts in the U.S. showing significant growth in 2024, a leading indicator of demand for Medidata’s services.
Dassault’s 3DEXPERIENCE platform is another pillar of the bullish thesis. Berenberg notes that adoption momentum remains strong, with customers increasingly leveraging the platform for design and manufacturing solutions.
The transition to a subscription-based model continues to drive higher total contract values through up-selling and cross-selling opportunities.
Dassault’s recent contract expansion with Volkswagen (ETR:VOWG_p) underscores this trend, as the automaker extends its use of 3DEXPERIENCE beyond design into manufacturing processes.
Berenberg also points to Dassault’s pragmatic financial targets for 2025, which the firm believes provide room for outperformance.
Revenue expectations have been rebased after last year’s underperformance, reducing downside risks.
Consensus revenue projections for the next three years have been revised downward by approximately 4.5% since early 2024, creating a lower hurdle for Dassault to surpass market expectations.
Valuation is another critical factor in Berenberg’s upgrade. Dassault’s shares currently trade at a discount relative to historical averages and sector peers.
The stock is priced at 37 times expected free cash flow per share for 2025, with the investment firm anticipating a re-rating as confidence in the company’s recovery strengthens.
While some discount was previously warranted due to growth concerns, Berenberg expects part of this gap to close as Dassault regains its status as a high-quality compounder.
Shares of the company were up 12.6% at 06:03 ET (11:03 GMT).