RealPage Shares Higher As William Blair Upgrades To Outperform

William Blair analyst Brandon Dobell upgraded RealPage, Inc. RP to Outperform from Market Perform. His belief is that management would deliver revenue predictability, cash flow conversion and the level of profit through the year 2018.

The brokerage said, "With apartment rents peaking and/or declining in leading-edge cities (e.g., New York and San Francisco) and deliveries of rental units catching up to supply in many other markets, we believe the market backdrop will gradually improve for RealPage's products and sales efforts. We believe that the company has set up guidance well for 2016."

Dobell is confident about RealPage's ability to generate solid operating margin expansion due to modest enhancements in gross margin, R&D, and G&A expense leverage as he was convinced that the last three quarters of average of over 400 basis points of EBITDA margin expansion were not a fluke.

The brokerage said, "With shares trading at 2.7 times our 2017 revenue estimate, 12 times our 2017 EBITDA estimate, and 15 times our 2017 free cash flow estimate (7% yield), we do not believe that investors are at all confident in sustained organic growth of 15% or better or management's commentary about at least 100 basis points—let alone 150 basis points— of margin expansion in the next couple of years."

Dobell said that in his view, the market remains focused on the issues RealPage struggled with in 2013 and 2014. That included unexpected volatility in revenue, salesforce headcount and productivity underperformance, insufficient operating leverage, and relatively weak cash flow conversion.

Shares of the company traded 4.17 percent on Wednesday.