Pegasystems shares rise on growing demand for its AI-powered tools

Pegasystems Inc. NASDAQ: PEGA is an enterprise software company specializing in helping companies achieve business transformation results with its suite of cloud-based tools on the Pega platform. Its artificial decision making (AI) and workflow automation platforms specialize in customer relationship management (CRM) and business process management (BPM) to help companies automate, simplify and optimize efficiency operational. The company has competitors in the business services sector, particularly in the CRM and BPM segments, among them Salesforce Inc. New York Stock Exchange: CRM, ServiceNow Inc. NYSE: NOWAND UiPath Inc. NYSE: PATH.

Features of the Pega platform

The Pega platform specializes in optimizing customer engagement and workflows with its centralized, always-on AI-powered decision engines. Its platform contains four role-based authoring solutions that can quickly create applications through a visually guided process that requires no coding. Pega Process Mining, powered by artificial intelligence, analyzes processes to eliminate inefficiencies and uncover optimization opportunities for business users and data scientists.

Pega Process AI integrates automation into workflows, helping you monitor and optimize all process touchpoints. Built-in model development tracking and governance helps improve and simplify collaboration between app developers and data scientists. Many of the tools provide predictive functions and provide useful information. Pega Gen AI is the first generative AI for business, enabling AI-generated low code to transform ideas into business apps. Check the heat map of the sector on MarketBeat.

Knocking it out of the park

On February 14, 2024, Pegasystems reported fourth-quarter 2023 earnings per share of $1.77, beating consensus analyst estimates of 99 cents by 78 cents. Revenue rose 19.6% year-over-year to $474.23 million, beating analysts’ estimates of $413.79 million. Pega generated double-digit growth in annual contract value (ACV) and record cash flow in the quarter, exceeding $200 million. Pega Cloud gross margins rose to 74% for 2023.

Double-digit segment growth

Literally all of its segments, with the exception of perpetual licensing, saw double-digit growth. Subscription services saw year-over-year growth of 43% to $206.99 million, while subscription licensing saw 44% year-over-year growth in the quarter to $207.56 million. Maintenance and Consulting recorded growth of 18% and 12% year-on-year respectively.

Driving on the rise

Pegasystems provided upward guidance for full-year 2024 EPS of $2.75 versus consensus estimates of $2.45. Revenues are expected to be around $1.5 billion versus $1.48 billion. The company expects ACV to grow 11% and expects $365 million in cash from operating activities and free cash flow of $350 million.

Artificial intelligence is on every CEO’s mind

Alan Trefler, CEO and founder of Pega, said he met with his most senior clients in Davos for the World Economic Forum’s annual meeting. The topic of artificial intelligence has dominated almost every conversation. Trefler commented: “And our business AI-powered decision-making and workflow automation platform enables customers to achieve business transformation results, with real-time optimization and continuous improvement. On our website you can find great case studies that explain how our customers are using the software to, first, improve customer engagement by personalizing conversations in real time and at scale.”

Case studies

Trefler gave examples of how Wells Fargo and Co. New York Stock Exchange: WFC uses its customer decision center to provide relevant, targeted responses to billions of monthly customer interactions. Aflac Inc. New York Stock Exchange: AFL attests to how Pegasystems is simplifying and automating the processing of thousands of emails to improve customer and employee satisfaction. Lloyds of London uses automation intelligently to resolve fraud and dispute claims more quickly and effectively while on the phone with the customer.

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Wedbush Outperform Rating

Wedbush maintained an Outperform rating on Pegasystems stock. Analysts recognize that Pegasystems had a solid fourth quarter of 2023 driven by the success of Pega Cloud and generative AI. The strong forecast, which included free cash flow of $350 million, was impressive, considering the highest number was $275 million. More and more customers are moving to Pega Cloud and integrating generative AI into their data. Analysts expect gross margins to exceed 80% with further automation and scale-up of Pega Cloud.

Pegasystems analyst ratings and price targets I’m on MarketBeat. Pegasystem peers and competitor actions can be found with MarketBeat Stock Screener.

Daily ascending triangle pattern

The daily candlestick chart on PEBA illustrates an ascending triangle pattern. The ascending trend line formed at $44.07 on January 4, 2024. It triggered a daily breakout of the market structure low (MSL) through the $45.41 trigger. The ascending trendline has supported higher lows on pullbacks headed towards the flat upper resistance trendline at $50.84, which also serves as a gap-filling price level. PEGA jumped to $60.00 in its stunning fourth-quarter 2023 earnings report the next day, when shares rose to $69.26 before falling back to $64.88, forming a daily bullish harami candle. The daily relative strength index (RSI) rose through the 70 band while forming a strong peak, falling back towards the 70 band. Pullback support levels are at $60.00, $53.97, $50.84 and $47.82.

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