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Pegasystems Inc PEGA

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Morningstar’s Analysis

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Pegasystems’ Cloud Drives Acceleration, Cross-Selling Opportunities Abundant; FVE Stable at $157

Dan Romanoff, CPA Equity Analyst

Analyst Note

| Dan Romanoff, CPA |

Narrow-moat Pegasystems reported an excellent second quarter with revenue and profitability exceeding our expectations by a wide margin. While much of the outperformance was driven by one $30 million deal, the company reported good results even excluding this sale. Both annual contract value, or ACV, and remaining performance obligation, or RPO, were solid, up 22% to $899 million and 26% to $1.03 billion, respectively. ACV and RPO serve as the best measures of business momentum during the cloud transition. We share management’s optimism that customers will look to streamline their processes in order to navigate the uncertainty from the pandemic, which bodes well for the firm’s digital transformation solutions. We are likewise confident in the company’s go-to-market strategy and cross-selling potential, as evidenced by the aforementioned deal--which, while a renewal from an existing customer--was extended in term and expanded in usage. We are holding our fair value estimate steady at $157 per share and view shares as undervalued.

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Company Profile

Business Description

Founded in 1983, Pegasystems provides a suite of solutions for customer engagement and business process automation. The company’s key offering is the Pega Infinity platform, which combines business process automation with customer engagement applications.

One Rogers Street
Cambridge, MA, 02142-1209
T +1 617 374-9600
Sector Technology
Industry Software - Application
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2020
Stock Type Classic Growth
Employees 5,776