Citi has named Pegasystems one of its new top picks, citing an “underappreciated” artificial intelligence story and attractive valuation. The Wall Street bank has set a target price of $92 for Pegasystems, representing a potential 25% upside from its current trading price of around $73.50. Pegasystems, an enterprise software firm, has seen its stock price surge by over 50% year-to-date, outperforming the broader iShares Expanded Tech-Software Sector ETF , which is up nearly 14% this year. PEGA 1Y line The Massachusetts-based company received favorable news in its ongoing legal battle with competitor Appian Corporation earlier this year. The Virginia Court of Appeals partially reversed a $2 billion verdict against Pegasystems, which had been a significant overhang on the stock. Appian accused the company of stealing trade secrets. Citi analysts view this development as a catalyst for the stock to rise. “We recently moved PEGA to our top pick, seeing the recent VA Appellate Court ruling as a key unlock on valuation, sentiment, and investor interest now that the $2B lawsuit and going concern risk have now rolled off (expect few-hundred million potential risk)”, Citi analysts Steven Enders and George Kurosawa, said in a note to clients on Oct. 6. “While there is still risk given APPN re-appealing to the VA Supreme Court and impact from legal fees/distractions, we significantly lowered the discount applied to our base case post-appeal (from $1B to $200M).” The positive outlook for Pegasystems has not gone unnoticed by other Wall Street firms. Loop Capital Markets and Citizens JMP also upgraded the stock to “buy” and “market outperform” respectively after the verdict, with price targets around $85. On a fundamental level, Citi’s analysts also believe that Pegasystems’ unique approach to artificial intelligence, particularly its “blueprint” strategy, sets it apart from competitors, calling it an “underappreciated gen AI story.” Pegasystems offers a service that converts its customers’ legacy workflow diagrams to cloud-ready workflows using AI, saving money and time. “PEGA’s unique Blueprint strategy appears to be helping drive significant customer engagement with 10s of thousands of Blueprints created already,” the analysts said. “We see this as a unique approach to genAI monetization with potential to see positive impacts on deal closures, time to value, expansion rates, and improved partner relations.” Citi also said that Pegasystems reported a “strong” set of financial results for the second quarter. The company reported earnings per share of $0.52, significantly beating the FactSet consensus estimate of $0.26 earlier this month. Revenue for the quarter came in at $351 million, also surpassing analyst expectations of $324 million. — CNBC’s Michael Bloom contributed reporting.
