- Analysts remained divided with a cautious tone over SAP SE's (NYSE:SAP) prospects post Q2 results.
- Barclays analyst Raimo Lenschow saw SAP managing expectations into Q2, and the move lower in consensus halved the adj. EBIT miss.
- He found the FY guidance cut was unexpected, though, especially following reiterations in the quarter, and could not be avoided after an incremental license miss.
- He saw further downside risk if the license did not stabilize.
- Lenschow reiterated an Equal Weight and reduced the price target from $108 to $106 (13% upside).
- JMP Securities analyst Patrick Walravens maintained a Market Perform and a $170 price target following mixed Q2 results.
- He saw strong Q2 performance amid macro challenges with the cloud business beating consensus and big customers like Samsung Electronics Co., Ltd. (OTC:SSNLF) moving to S4/HANA.
- Though the profitability was affected by withdrawal from the Russia business, the business shifted faster than expected to the cloud and from upfront to recurring revenue.
- He saw the shift as having positive medium-term implications.
- He saw that SAP was confident it would grow its operating profit "in double digits" in 2023.
- However, he cut his non-IFRS EPS estimates for 2022, 2023, and 2024.
- BMO analyst Keith Bachman noted that SAP management guided lower FY22 operating profit, which investors partially expected.
- Furthermore, management retained the FY22 FCF guide even with lower operating profit.
- SAP cloud adoption and net new cloud customers remained strong.
- He modestly cut his FCF estimates for FY22 and FY23 and thus slashed his price target to €104 from €105.
- He preferred Microsoft Corp (NASDAQ:MSFT) and Salesforce, Inc (NYSE:CRM) in large-cap software.
- He was concerned if SAP had been conservative enough in guidance given the risk of further macro deterioration.
- Berenberg analyst Nay Soe Naing saw cloud revenues grow by 32% Y/Y at CC in Q2, and growth in S/4HANA Cloud, which he believes is key to the overall cloud transition, continued to accelerate.
- Gross margins were already expanding in the cloud business beating his expectation.
- Strong cloud performance in Q2 underpinned his investment view that cloud transformation was likely to be a success and could lead to a re-rating of the SAP shares, which currently trade at a c30% discount to their average for the past five years.
- Price Action: SAP shares traded higher by 3.62% at $93.56 on the last check Friday.
