Pegasystems: Taking flight as software demand grows
Sometimes it’s the little things that seemingly stir investors into action.
Take Pegasystems Inc. (Nasdaq:PEGA), a maker of business process management (BPM) software, the enterprise-wide programs needed on this corporate planet to automate and streamline workflow while minimizing risks such as fraud. Pegasystems client roster is liberally sprinkled with Fortune 500 names, primarily in financial services, health care and insurance. Others are found in government, transaction outsourcing, communications and manufacturing.
A June 19 announcement from the Cambridge, Mass., company confirmed payment of a regular $0.03 dividend. Nothing new here; Pegasystems has been distributing that quarterly dividend the past few years.
Shares closed 6% higher that day, but the fireworks in Pegasystems share price have continued — right through Wednesday, when the stock climbed to a 52-week high of $14.07. Pegasystems had traded as low as $8.73 on Jan. 22. Shares closed Thursday at $13.75.
Whether that dividend commitment was behind the climb, few analysts are currently tracking Pegasystems, which has been around for a quarter century. On the same day of the announcement, Stanford Group’s Kevin Buttigieg initiated coverage with a “hold” rating.
“They are laser-focused on BPM,” Gregg Speicher, senior analyst and founder of Moss Creek Capital in McKinney, Texas, said in an interview. He began issuing reports to clients about Pegasystems last summer, and has the stock rated at a “buy” with a $16 price target.
“I usually go to [software companies’] user conferences, where all the customers and partners go,” said Speicher. “I went to Pegasystems’ conference last year, and I was blown away by all the people spending on BPM.”
Pegasystems is thinly traded, with an average daily volume of around 140,000 shares. When there’s interest and buying begins, it doesn’t take much activity to cause large price movements. Of the 36 million shares outstanding, 60% are controlled by insiders, 37% by institutional investors. The company also is in the midst of a $10 million stock buyback.
“It’s a small door to get through when many people are trying to enter,” Speicher noted.
Pegasystems isn’t a newcomer to business software. Alan Trefler founded the company in 1983 on borrowed money, watched Pegasystems grow and took it public in 1996.
Trefler, who serves as Pegasystems chairman and chief executive, was a boy wonder of the software business, and the fact that he has survived in such a tumultuous industry is a clear indicator of his accomplishments. The chess master (1975 world co-champion) applied his board game wizardry to get computers to do what he wanted through complex rules.
BPM systems integrating many business activities such as opening an account or verifying data require equally robust rules. Pegasystems provides its patented PegaRules technology that helps differentiate its products — including the flagship Smart BPM Suite — from competitors such as Oracle Corp. (Nasdaq:ORCL), International Business Machines Corp. (NYSE:IBM), Microsoft Corp. (Nasdaq:MSFT) and Tibco Software Inc. (Nasdaq:TIBX).
Financials are solid, with Pegasystems sitting on $161 million in cash at the end of the first quarter, up from $150 million on Dec. 31, and no debt. U.S. customers accounted for 60% of first-quarter sales.
Business process management is booming, while other areas of IT spending have slowed. The BPM outlook remains strong, with Gartner projecting it to become a $5.1 billion market by 2011; IDC thinks it will grow to $5.5 billion, while Forrester estimates it will reach $6.3 billion, from what was roughly a $1.6 billion market in 2006.
“Pegasystems is quite a story,” said Speicher. “The CEO realized that things needed to be done to take the company to the next level … and made those changes. For many companies, BPM is a must-have now.”
Pegasystems was showing signs of malaise earlier this decade, with several years of stagnant revenues. The company also fell out of compliance with Sarbanes-Oxley regulations, requiring restatements of its 2001 to 2005 financials, but Pegasystems is again in good standing.
For the quarter ended March 31, Pegasystems reported a 29% revenue increase, to a record $48.5 million, as license revenue grew 45% to $17.5 million. Net income nearly tripled to $2.9 million, and earnings per share rose to $0.08, compared with $0.03 in the 2007 first quarter.
The previous fiscal year paints a similar upbeat picture. Overall revenue increased 29% to $161.9 million, with license revenue rising 44% to $51.1 million. Net income was $6.6 million, compared with $1.8 million 2006, and earnings per share were $0.18, versus $0.05 the year before. Speicher predicts 2008 EPS of $0.38.
Pegasystems’ 2008 guidance calls for revenue around $200 million, give or take 10% because of economic conditions. The company forecast net income in the $9 to $12 million range, which could boost earnings per share by roughly one-third from last year.
In initiating coverage, Stanford Group’s Buttigieg noted that Pegasystems “is well-positioned in the BPM market, which should see solid growth as companies seek to leverage web services standards to create efficiencies through improved business processes.”
Whether it was fresh analyst insights, investors recognizing the solid first quarter, or simply that dividend declaration, interest in Pegasystems could take flight as BPM demand grows wings.
Take Pegasystems Inc. (Nasdaq:PEGA), a maker of business process management (BPM) software, the enterprise-wide programs needed on this corporate planet to automate and streamline workflow while minimizing risks such as fraud. Pegasystems client roster is liberally sprinkled with Fortune 500 names, primarily in financial services, health care and insurance. Others are found in government, transaction outsourcing, communications and manufacturing.
A June 19 announcement from the Cambridge, Mass., company confirmed payment of a regular $0.03 dividend. Nothing new here; Pegasystems has been distributing that quarterly dividend the past few years.
Shares closed 6% higher that day, but the fireworks in Pegasystems share price have continued — right through Wednesday, when the stock climbed to a 52-week high of $14.07. Pegasystems had traded as low as $8.73 on Jan. 22. Shares closed Thursday at $13.75.
Whether that dividend commitment was behind the climb, few analysts are currently tracking Pegasystems, which has been around for a quarter century. On the same day of the announcement, Stanford Group’s Kevin Buttigieg initiated coverage with a “hold” rating.
“They are laser-focused on BPM,” Gregg Speicher, senior analyst and founder of Moss Creek Capital in McKinney, Texas, said in an interview. He began issuing reports to clients about Pegasystems last summer, and has the stock rated at a “buy” with a $16 price target.
“I usually go to [software companies’] user conferences, where all the customers and partners go,” said Speicher. “I went to Pegasystems’ conference last year, and I was blown away by all the people spending on BPM.”
Pegasystems is thinly traded, with an average daily volume of around 140,000 shares. When there’s interest and buying begins, it doesn’t take much activity to cause large price movements. Of the 36 million shares outstanding, 60% are controlled by insiders, 37% by institutional investors. The company also is in the midst of a $10 million stock buyback.
“It’s a small door to get through when many people are trying to enter,” Speicher noted.
Pegasystems isn’t a newcomer to business software. Alan Trefler founded the company in 1983 on borrowed money, watched Pegasystems grow and took it public in 1996.
Trefler, who serves as Pegasystems chairman and chief executive, was a boy wonder of the software business, and the fact that he has survived in such a tumultuous industry is a clear indicator of his accomplishments. The chess master (1975 world co-champion) applied his board game wizardry to get computers to do what he wanted through complex rules.
BPM systems integrating many business activities such as opening an account or verifying data require equally robust rules. Pegasystems provides its patented PegaRules technology that helps differentiate its products — including the flagship Smart BPM Suite — from competitors such as Oracle Corp. (Nasdaq:ORCL), International Business Machines Corp. (NYSE:IBM), Microsoft Corp. (Nasdaq:MSFT) and Tibco Software Inc. (Nasdaq:TIBX).
Financials are solid, with Pegasystems sitting on $161 million in cash at the end of the first quarter, up from $150 million on Dec. 31, and no debt. U.S. customers accounted for 60% of first-quarter sales.
Business process management is booming, while other areas of IT spending have slowed. The BPM outlook remains strong, with Gartner projecting it to become a $5.1 billion market by 2011; IDC thinks it will grow to $5.5 billion, while Forrester estimates it will reach $6.3 billion, from what was roughly a $1.6 billion market in 2006.
“Pegasystems is quite a story,” said Speicher. “The CEO realized that things needed to be done to take the company to the next level … and made those changes. For many companies, BPM is a must-have now.”
Pegasystems was showing signs of malaise earlier this decade, with several years of stagnant revenues. The company also fell out of compliance with Sarbanes-Oxley regulations, requiring restatements of its 2001 to 2005 financials, but Pegasystems is again in good standing.
For the quarter ended March 31, Pegasystems reported a 29% revenue increase, to a record $48.5 million, as license revenue grew 45% to $17.5 million. Net income nearly tripled to $2.9 million, and earnings per share rose to $0.08, compared with $0.03 in the 2007 first quarter.
The previous fiscal year paints a similar upbeat picture. Overall revenue increased 29% to $161.9 million, with license revenue rising 44% to $51.1 million. Net income was $6.6 million, compared with $1.8 million 2006, and earnings per share were $0.18, versus $0.05 the year before. Speicher predicts 2008 EPS of $0.38.
Pegasystems’ 2008 guidance calls for revenue around $200 million, give or take 10% because of economic conditions. The company forecast net income in the $9 to $12 million range, which could boost earnings per share by roughly one-third from last year.
In initiating coverage, Stanford Group’s Buttigieg noted that Pegasystems “is well-positioned in the BPM market, which should see solid growth as companies seek to leverage web services standards to create efficiencies through improved business processes.”
Whether it was fresh analyst insights, investors recognizing the solid first quarter, or simply that dividend declaration, interest in Pegasystems could take flight as BPM demand grows wings.
About the Author
Contributing author Paul Rolfes is assistant business editor at The Courier-Journal, the largest daily newspaper in Kentucky.
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