Investing.com — Citi sees further upside in Appian (NASDAQ:APPN) and Pegasystems Inc (NASDAQ:PEGA), citing improving demand for software that automates business processes and incorporates artificial intelligence.
The bank favours Appian for its stronger execution, accelerating cloud growth and improving federal demand, while viewing Pegasystems as an undervalued longer-term opportunity despite near-term sales execution concerns.
Pegasystems
Citi maintains a “buy” rating on Pegasystems, seeing potential upside after a difficult period for sales growth. It cut its price target to $52 from $55 to reflect weaker near-term visibility. At $34.91 on October 12, the shares implied about 49% upside to the new target.
The key question is whether slower annual contract value (ACV) growth, which measures new and expanded customer contracts, reflects delayed deals and sales-process changes or a more lasting slowdown. ACV growth eased to 8% year on year in the second quarter from 11% in the first, prompting management to lower its full-year growth target to about 10% from an initial 15%.
Citi believes investors are underestimating Pega Blueprint, its AI-powered application-design and workflow-automation tool. Internal testing cited by the bank showed it could produce a demonstration application in 45 hours, compared with more than 2,000 hours using traditional development methods.
Pegasystems reports third-quarter results on October 20 after the market close. Investors will look for signs that delayed deals are converting into contracts, alongside updates on the year-end pipeline, cash flow and AI-related products.
Appian
Appian is Citi’s preferred pick, citing stronger execution, accelerating cloud growth and improving government demand. The bank maintains a Buy rating and $40 price target, against a share price of $38.93 on October 12.
Shares have risen 28% since the close following second-quarter results, outperforming the IGV software index’s 12% gain. They are up 10% year to date, versus 5% for the index, but Citi believes investors still underestimate the durability of cloud growth and the potential to monetise AI products.
Second-quarter cloud revenue growth accelerated to 22% year on year, while remaining performance obligations due within 12 months rose 23%. Federal demand is another catalyst, with Citi finding Appian and related partners secured a record $60 million in third-quarter awards, up from $49 million a year earlier.
