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Here's Why Investors Should Offload Blackbaud (BLKB) Stock
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In case you are still holding on to shares of Blackbaud, Inc. (BLKB - Free Report) in your portfolio, it’s high time to get rid of the stock. The odds in favor of an upside in the near term are slim. The company has been witnessing downward revisions and has weak fundamentals.
Year to date, shares of Blackbaud have underperformed the industry. Blackbaud’s shares have returned 8.7% compared with the industry’s rally of 25.1%.
Let’s analyze the aspects that are plaguing this Zacks Rank #5 (Strong Sell) stock.
Factors Limiting Growth
Intense Competition
Blackbaud is one of the leading cloud software companies working for social causes. The company combines technology and expertise to help organizations achieve their respective missions.
However, stiff competition from other players that provide software and related services in the non-profit sector are threatening the company’s leading position. In the general business, the company faces competition from Salesforce.com and Oracle.
Intensifying competition negatively impacts pricing power, limiting margin expansion. Moreover, in order to remain competitive, the company has to increase spending on research & development, which is likely to negatively impact operating margin.
Modest Q2 Results
Blackbaud reported modest second-quarter results, wherein the top line matched the Zacks Consensus Estimate. Further, the company provided not so encouraging fiscal 2018 outlook.
In second-quarter fiscal 2018, total non-GAAP revenues increased 11.8% year over year to $214.6 million. However, the figure was almost in line with the Zacks Consensus Estimate of $214 million.
The company reiterated fiscal 2018 guidance. Management anticipates fiscal 2018 revenues in the range of $870-$890 million (mid-point $880 million). The Zacks Consensus Estimate is pegged at $872.26, in line with the lower end of the guided range.
Buyouts Pose Integration Risks
Blackbaud continues to acquire a large number of companies. While this improves revenue opportunities as well as business mix and profitability, it also adds to integration risks.
In a bid to gain performance management capabilities, Blackbaud acquired Reeher. Reeher provides fundraising performance management solutions aimed at supporting higher education, in particular.
Buyouts have negatively impacted its balance sheet, as high indebtedness adds to the risk of investing in the company. Moreover, frequent acquisitions are a distraction for management, which could impact organic growth, going forward.
Higher Spending on Raiser’s Edge NXT
Blackbaud continues to spend heavily on developing its flagship cloud-based fundraising and relationship management offering —Raiser’s Edge NXT — with new innovative benchmarking capabilities.
Recently, the company partnered with Daxko. Per the terms of the partnership, Raiser's Edge NXT will be integrated with Daxko Operations, a non-profit membership solution of Daxko.
The partnership will enable non-profit organizations leverage both Raiser's Edge NXT and Daxko Operations to share data, extend the market reach with enhanced visibility ofdonor bases and membership.
Higher spending on product development is likely to keep margins under pressure at least in the near term.
Downward Estimate Revision
Analysts have become increasingly bearish on the stock in the past couple of months with all estimates moving south and no movement in the opposite direction. Estimates for the current quarter and year have moved south in the past 30 days.
The company’s current quarter earnings estimates moved down from 70 cents to 67 cents. Further, the company’s fiscal 2018 earnings estimates moved down from $2.82 to $2.76.
Considering its weak fundamentals combined with an unfavorable Zacks Rank, shares of Blackbaud are likely to keep analysts anxious in the quarters ahead.
To Conclude
We expect the aforementioned factors to hurt the company’s near-term profitability. Consequently, we recommend investors to be wary of Blackbaud shares until its Zacks Rank and estimates improve.
Long-term earnings growth rate for Paycom, AspenTech and Logitech are pegged at 24.8%, 16.5% and 8%, respectively.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius. Click for details >>
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Here's Why Investors Should Offload Blackbaud (BLKB) Stock
In case you are still holding on to shares of Blackbaud, Inc. (BLKB - Free Report) in your portfolio, it’s high time to get rid of the stock. The odds in favor of an upside in the near term are slim. The company has been witnessing downward revisions and has weak fundamentals.
Year to date, shares of Blackbaud have underperformed the industry. Blackbaud’s shares have returned 8.7% compared with the industry’s rally of 25.1%.
Let’s analyze the aspects that are plaguing this Zacks Rank #5 (Strong Sell) stock.
Factors Limiting Growth
Intense Competition
Blackbaud is one of the leading cloud software companies working for social causes. The company combines technology and expertise to help organizations achieve their respective missions.
However, stiff competition from other players that provide software and related services in the non-profit sector are threatening the company’s leading position. In the general business, the company faces competition from Salesforce.com and Oracle.
Intensifying competition negatively impacts pricing power, limiting margin expansion. Moreover, in order to remain competitive, the company has to increase spending on research & development, which is likely to negatively impact operating margin.
Modest Q2 Results
Blackbaud reported modest second-quarter results, wherein the top line matched the Zacks Consensus Estimate. Further, the company provided not so encouraging fiscal 2018 outlook.
In second-quarter fiscal 2018, total non-GAAP revenues increased 11.8% year over year to $214.6 million. However, the figure was almost in line with the Zacks Consensus Estimate of $214 million.
The company reiterated fiscal 2018 guidance. Management anticipates fiscal 2018 revenues in the range of $870-$890 million (mid-point $880 million). The Zacks Consensus Estimate is pegged at $872.26, in line with the lower end of the guided range.
Buyouts Pose Integration Risks
Blackbaud continues to acquire a large number of companies. While this improves revenue opportunities as well as business mix and profitability, it also adds to integration risks.
In a bid to gain performance management capabilities, Blackbaud acquired Reeher. Reeher provides fundraising performance management solutions aimed at supporting higher education, in particular.
Buyouts have negatively impacted its balance sheet, as high indebtedness adds to the risk of investing in the company. Moreover, frequent acquisitions are a distraction for management, which could impact organic growth, going forward.
Higher Spending on Raiser’s Edge NXT
Blackbaud continues to spend heavily on developing its flagship cloud-based fundraising and relationship management offering —Raiser’s Edge NXT — with new innovative benchmarking capabilities.
Recently, the company partnered with Daxko. Per the terms of the partnership, Raiser's Edge NXT will be integrated with Daxko Operations, a non-profit membership solution of Daxko.
The partnership will enable non-profit organizations leverage both Raiser's Edge NXT and Daxko Operations to share data, extend the market reach with enhanced visibility ofdonor bases and membership.
Higher spending on product development is likely to keep margins under pressure at least in the near term.
Downward Estimate Revision
Analysts have become increasingly bearish on the stock in the past couple of months with all estimates moving south and no movement in the opposite direction. Estimates for the current quarter and year have moved south in the past 30 days.
The company’s current quarter earnings estimates moved down from 70 cents to 67 cents. Further, the company’s fiscal 2018 earnings estimates moved down from $2.82 to $2.76.
Considering its weak fundamentals combined with an unfavorable Zacks Rank, shares of Blackbaud are likely to keep analysts anxious in the quarters ahead.
To Conclude
We expect the aforementioned factors to hurt the company’s near-term profitability. Consequently, we recommend investors to be wary of Blackbaud shares until its Zacks Rank and estimates improve.
Stocks to Consider
Paycom Software, Inc. (PAYC - Free Report) , Aspen Technology, Inc. (AZPN - Free Report) and Logitech International S.A. (LOGI - Free Report) , in the broader technology sector are worth considering. All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for Paycom, AspenTech and Logitech are pegged at 24.8%, 16.5% and 8%, respectively.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Click for details >>