On Monday, TD (TSX:TD) Cowen updated its stance on PagerDuty (NYSE:PD) shares, a global leader in digital operations management, by raising the price target to $20.00 from the previous target of $19.00. The firm has maintained a Hold rating on the company's shares.
The revision comes as PagerDuty is expected to report its earnings on November 26. TD Cowen anticipates that the revenue growth will align with the company's guidance of 6-8% and that the fourth-quarter guidance will be consistent with the firm's estimate of 9%.
The analyst forecasts that management will reaffirm expectations for second-half annual recurring revenue (ARR) to reaccelerate, driven by an increasing mix of enterprise customers.
Furthermore, the firm is looking for early indications of the market's reception to PagerDuty's new artificial intelligence (AI) products. While the current trading valuation of 3.5 times enterprise value to calendar year 2025 estimated sales is considered inexpensive, TD Cowen suggests that the valuation may remain limited for the time being.
The analyst's comments reflect a cautious optimism about PagerDuty's potential growth, driven by its evolving enterprise customer base and new product offerings. The Hold rating indicates that TD Cowen advises investors to maintain their current position in the stock without further buying or selling actions at this time.
In other recent news, incident management solutions provider, PagerDuty, reported steady growth in its second-quarter performance for fiscal year 2025. The company saw an 8% year-over-year revenue increase to $116 million and a non-GAAP operating margin of 17%.
Moreover, the annual recurring revenue grew by $11 million, reaching $474 million. These developments come alongside significant growth in the enterprise segment, marked by a record number of multi-year agreements and high-value accounts.
Despite experiencing challenges in the small and medium-sized business sector, PagerDuty is optimistic about exceeding 10% annual recurring revenue growth in fiscal year 2025. The company's new products have contributed to 65% of net new annual recurring revenue.
Looking ahead, PagerDuty anticipates a revenue range of $463 million to $467 million for the full fiscal year, maintaining a 7% to 8% growth rate. However, the company did see a decrease in total paid customers, primarily due to losses in the small and medium-sized business segment. Despite this, the company remains focused on long-term growth and customer relations, particularly in the enterprise segment.
InvestingPro Insights
PagerDuty's financial metrics and recent market performance offer additional context to TD Cowen's analysis. According to InvestingPro data, the company has seen a significant return over the last week, with a 11.85% price total return, and a strong 15.09% return over the last month. This recent positive momentum aligns with TD Cowen's decision to raise the price target.
Despite these short-term gains, PagerDuty faces some financial challenges. An InvestingPro Tip notes that the company has not been profitable over the last twelve months, which is reflected in its negative P/E ratio of -23.04. However, another InvestingPro Tip suggests that analysts predict the company will be profitable this year, potentially supporting TD Cowen's cautious optimism.
The company's gross profit margin stands at an impressive 82.25%, indicating strong pricing power and efficient operations. This high margin could provide PagerDuty with financial flexibility as it continues to invest in AI products and expand its enterprise customer base.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for PagerDuty, providing a deeper understanding of the company's financial health and market position.
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