Citi has named Pegasystems one of its new top picks, citing an “undervalued” AI story and attractive valuation. The Wall Street bank has set a $92 target price on Pegasystems, representing a potential 25% upside from its current trading price of around $73.50. Pegasystems, an enterprise software company, has seen its share price rise more than 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 positive news in its ongoing legal battle with competitor Appian Corporation earlier this year. The Virginia Court of Appeals partially overturned a $2 billion judgment against Pegasystems that had been a significant overhang on the stock. Appian accused the company of stealing trade secrets. Citi analysts see this development as a catalyst for the stock’s rise. “We recently moved PEGA to our top pick, seeing the recent VA appeals court ruling as a key lock on valuation, sentiment and investor interest now that the $2B lawsuit and going concern risk has now rolled off (expect a few hundred million potential) risk),” Citi analysts Steven Enders and George Kurosawa said in a note to clients on Oct. 6. “While there remains the risk of APPN re-appealing to the VA Supreme Court and the impact of legal fees/distractions, we significantly lowered the discount applied to our base case post-appeal (from $1 billion to $200 million).” 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. At a fundamental level, Citi’s analysts also believe that Pegasystems’ unique approach to artificial intelligence, particularly its “blueprint” strategy, sets it apart from the competition, calling it an “underrated gen AI story.” Pegasystems offers a service that converts its customers’ legacy workflow diagrams into cloud-ready workflows using artificial intelligence, saving money and time. “PEGA’s unique Blueprint strategy appears to be helping to drive significant customer engagement with tens of thousands of Blueprints already created,” the analysts said. “We see this as a unique approach to genAI monetization with the potential to see positive impacts on deal closures, time to value, expansion rates and improved partner relationships.” Citi also said 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, which also exceeded analysts’ expectations of $324 million. — CNBC’s Michael Bloom contributed reporting.
Citi names “undervalued” AI stock as a top pick – giving it 25% upside