Manhattan Associates: Upgrading Moat to Wide Based on Smooth Model Transition
We are upgrading our moat rating for Manhattan Associates to wide from narrow as the model transition to the cloud has been fairly smooth and did not crush returns as often happens. We now believe the company will probably deliver excess returns beyond its cost of capital for the next 20 years based primarily on switching costs in its subscription business, with a secondary moat source from intangible assets arising from its vertical specialization in supply chain and logistics-related software. Based on increased confidence in the longer-term outlook for Manhattan, we are raising our fair value estimate to $225 per share from $205 previously in connection with our moat upgrade. With recent pressure on the stock, we view shares as approximately fairly valued.