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SAP Stock Jumps 33.2% YTD: Will the Upward Trend Continue?

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SAP SE (SAP - Free Report) is witnessing strong momentum, with shares having gained 33.2% year to date compared with the S&P Composite’s growth of 17%. It is one of the largest independent software vendors in the world. SAP is also the leading provider of enterprise resource planning (ERP) software.

Growth Factors

SAP’s performance is benefiting from continued strength in its cloud business across all regions. Driven by this, SAP reported second-quarter 2023 total revenues, on a non-IFRS basis, of €7.554 billion ($8.182 billion), increasing 5% year over year (up 8% at constant currency or cc).

Its efforts have received a major push with the launch of Rise with SAP solution. This solution helps companies to transform their business processes and operations to become more nimble, digital and intelligent. RISE with SAP solution continues to gain significant traction and will aid the company drive its market share in the cloud ERP solutions’ space.

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In the second quarter of 2023, Rise with SAP solution was adopted by clients including ARAG, Bacardi-Martini, Bayer, DFS Deutsche Flugsicherung, Empresas Polar, Foodstuffs South Island, GOL, McBride, Municipality of Utrecht and Sochor.

Momentum in SAP’s business technology platform particularly S/4HANA solutions augurs well. More companies have begun deploying S/4HANA solution partly or entirely in the cloud. SAP S/4HANA cloud revenues soared 74% (up 79% at cc) year over year to €823 million in the last reported quarter. SAP S/4HANA’s current cloud backlog rose 65% (up 70% at cc) year over year.

Frequent product launches like Grow with SAP and SAP Datasphere as well as strategic acquisitions and collaborations bode well.

SAP also divested its stake in Qualtrics to accelerate cloud transformation. Management still expects cloud revenues to be more than €21.5 billion excluding Qualtrics.

SAP's strong business momentum and Qualtrics divestiture have prompted it to boost capital returns. It has announced a new share repurchase program with a volume of up to €5 billion in May 2023 which is expected to start in the second half of 2023. This program is projected to be fully completed by 2025 end. This new authorization is in line with SAP's repurchases of 14 million shares for €1.5 billion in 2020 and around 16 million shares worth €1.5 billion in 2022.

However, the company’s performance is affected due to continued softness in the software license and support business segment. Global macroeconomic weakness, increasing research & development expenses, and stiff competition in the cloud space are concerns for this Zacks Rank #3 (Hold) stock.

A Look at Estimates

SAP’s earnings per share are indicated to climb 29.9% and 21.1% on a year-over-year basis to $5.56 and $6.73 in 2023 and 2024, respectively.  Revenues for 2023 and 2024 are projected to rise 5.8% and 8.8% to $34.33 billion and $37.3 billion, respectively.

The Zacks Consensus Estimate for 2023 and 2024 earnings has remained unchanged in the past seven days.

Stocks to Consider

Some better-ranked stocks worth consideration in the broader technology space are Badger Meter (BMI - Free Report) , Salesforce (CRM - Free Report) and Pegasystems (PEGA - Free Report) . Badger Meter sports a Zack Rank #1 (Strong Buy) while each of Salesforce and Pegasystems carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Badger Meter’s 2023 earnings has gained 6.3% in the past 60 days to $2.86 per share. BMI’s earnings beat estimates in the last four quarters, the average surprise being 6.7%. Shares of BMI have surged 60% in the past year.

The Zacks Consensus Estimate for Salesforce’s fiscal 2024 earnings is pegged at $7.44 per share, unchanged in the past 60 days. The long-term earnings growth rate is anticipated to be 19.3%.

CRM’s earnings surpassed estimates in the last four quarters, the average beat being 15.5%. Shares of CRM have grown 10.1% in the past year.

The Zacks Consensus Estimate for Pegasystems’ 2023 earnings has improved 6.6% in the past 60 days to $1.46 per share. PEGA’s earnings has an average surprise of 166.2% in the trailing four quarters. Shares of PEGA have jumped 16.1% in the past year.

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