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Why Tyler Technologies (TYL) Is a Promising Portfolio Pick

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Tyler Technologies (TYL - Free Report) is one stock investors should consider adding to their portfolio to benefit from its upside potential.

Shares of this leading provider of integrated software and technology services for the public sector have risen 13.7% year to date (YTD) and outperformed the Zacks Business – Software Services industry, which declined 4.5% during the same time frame.

This impressive performance comes amid broader market volatility and reflects the company’s back-to-back quarters of impressive financial performance, favorable industry trends and strong fundamentals.

Here’s an in-depth look at why Tyler Technologies’ stock might be worth adding to your portfolio right now.

Strong Growth Prospects

Tyler Technologies has demonstrated impressive financial performance in recent quarters, with its non-GAAP earnings surpassing the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 6.7%. During its latest reported financial results for first-quarter 2024, revenues and earnings both beat the respective consensus mark and witnessed significant year-over-year improvement as well.

Tyler Technologies' guidance for full-year 2024 has been optimistic, too, projecting revenues between $2.11 billion and $2.14 billion, which indicates year-over-year growth of 9% at the midpoint. It forecasts to post non-GAAP earnings in the band of $9.10-$9.30 per share, which implies growth of 16.5-19%. This outlook suggests continued confidence in the business's ability to capture market share and expand its customer base.

The Zacks Consensus Estimate for 2024 revenues and non-GAAP earnings is pegged at $2.12 billion and $9.15 per share, respectively. This indicates a year-over-year improvement of 8.8% in the top line and 17.3% in the bottom line. Moreover, the long-term expected earnings growth rate currently stands at 15%, which is significantly higher than the industry’s average growth of 10.2%.

Positive Industry Trends

The public sector's increasing reliance on technology to improve efficiency and service delivery bodes well for Tyler Technologies. Governments at all levels are investing in digital transformation initiatives, which include modernizing legacy systems, enhancing cybersecurity and adopting cloud-based solutions. As a trusted partner to the public sector, Tyler Technologies is well-positioned to benefit from these industry trends.

With a comprehensive suite of solutions that streamline government operations and enhance public service delivery, Tyler Technologies has established a dominant position in this niche market. Its extensive product offerings cover a wide range of functionalities, including financial management, court case management, tax billing and public safety. The company’s agile cloud-based system not only improves efficiency but also lowers costs.

So far this year, the company has expanded its customer base by adding institutions like the Guam Department of Corrections, Illinois Police Department, Texas Office of Court Administration, Rhode Island Department of Business Regulation and the City of Edina. The public and federal organizations that go for multi-year deals provide stable and consistent revenue streams.

Acquisitions & Partnerships Aid Prospects

Acquisitions have played a pivotal role in Tyler Technologies' growth strategy. In 2023, it acquired four companies — ARInspect, ResourceX, Computing System Innovations and Safeground Analytics — which have enhanced its product offerings and customer base.

The acquisition of NIC Inc., a leader in digital government solutions and payments, has been particularly transformative. Acquired in 2021, NIC expanded its capabilities in digital government services and payment solutions, broadening its market reach and enhancing its product portfolio. By integrating NIC’s technology, Tyler Technologies has strengthened its position as a comprehensive provider of public sector solutions, attracting new clients and retaining existing ones.

Additionally, Tyler Technologies’ partnerships with tech giants like Microsoft (MSFT - Free Report) and Amazon’s (AMZN - Free Report) Amazon Web Services (AWS) significantly enhance its offerings and market reach. The partnership with Microsoft allows Tyler Technologies to provide scalable and secure cloud-based solutions to public sector clients, addressing the growing demand for digital transformation in government operations.

The partnership with Amazon’s AWS enables Tyler Technologies to utilize AWS’ powerful cloud infrastructure, ensuring reliable and efficient service delivery. AWS’s extensive suite of cloud services enhances Tyler Technologies’ capabilities in data management, analytics and cybersecurity, providing comprehensive solutions to its clients.

These technological alliances not only expand Tyler Technologies’ capabilities but also strengthen its market position, driving growth and innovation in the public sector technology space.

Final Thoughts

We consider that Tyler Technologies represents a compelling investment opportunity due to its strong market position, consistent revenue growth, strategic acquisitions, focus on innovation, robust financial health and favorable industry trends. The company's ability to deliver essential software solutions to the public sector, combined with its commitment to innovation and strategic growth, positions it well for sustained success.

Additionally, Tyler Technologies sports a Zacks Rank #1 (Strong Buy) and has a Growth Score of B at present. Per Zacks’ proprietary methodology, stocks with a combination of a Zacks Rank #1 or 2 (Buy) and a Growth Score of A or B offer solid investment opportunities.

Therefore, considering its impressive growth profile and attractive Zacks Style Score, we believe it is the right time to invest in the stock.

Another top-ranked stock worth considering in the broader technology sector is NVIDIA Corporation (NVDA - Free Report) . The stock currently sports a Zacks Rank #1 and has a Growth Score of A. You can see the complete list of today's Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for NVIDIA’s fiscal 2025 revenues currently stand at $116.4 billion,  which indicates year-over-year growth of 91%. The consensus mark for earnings is pegged at $25.10 per share, which implies a 93.7% increase from fiscal 2024. NVDA stock has surged 131.9% YTD.

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