Vertex Risk/Reward Path In Focus: 'Magnitude Of Stock Move Was Greater Than Expected'

BMO Capital Markets analyst Daniel Jester reiterated the Market Perform rating on Vertex, Inc. VERX, raising the price target to $28 from $24.

Investors rewarded the consistent execution Vertex exhibited in a beat and raise third quarter (Q3), although the magnitude of the stock move yesterday was greater than expected, according to the analyst.

In the recently reported Q3, the company's total revenues of $145 million were up 14.9% year-over-year.

Deployment flexibility and medium-term tailwinds from ERP platform evolution are supportive trends as companies modernize their tax software solutions.

Incremental growth drivers, including around e-invoicing, have less visibility and competitive peers in the analyst's view.

Jester ticked higher the ARR estimates highlighting moderate margin expansion as the company looks to drive more efficient growth.

Overall, shares of Vertex have re-rated higher as the defensive growth characteristics of the business have taken greater focus, per the analyst.

The analyst sees a more balanced risk/reward path in the near term until clarity emerges that the company can fully leverage the investment cycle of the past few years.

Following the Q3 results, the analyst raised the FY23 revenue estimate to $564 million from $560 million.

For FY24, Jester raised the revenue estimate to $643 million from $631 million. However, the analyst lowered the FY24 EPS estimate to 48 cents from 49 cents.

Price Action: VERX shares are trading higher by 0.8% to $27.35 on the last check Friday.

Image: Vertex