Barclays Sees SAP Entering A 'Goldilocks' Period

SAP SE (ADR) SAP seems poised for “a license revival, ongoing cloud strength and the return of margin leverage,” Barclays’ Raimo Lenschow said in a report. He maintained an Overweight rating on the company, with a price target of $105.

Goldilocks Period Ahead

The S/4 product cycle is poised to enter the next phase, during which SAP should witness the mass adoption of its business suite and a shift to larger enterprise clients. On the other hand, the company is close to the end of the Cloud buildout as well as its data center rationalization.

“We therefore expect SAP to begin a Goldilocks period with a license revival, ongoing cloud strength and the return of margin leverage,” analyst Lenschow commented. He expects SAP to generate double-digit EPS growth in 2017, and be able to sustain this pace through 2020.

“Large M&A could spoil this party, but management demonstrates a disciplined focus on small fill-ins with a maximum EUR1bn outlay,” Lenschow wrote. He added that this could result in increased shareholder returns in 2017-2018, and SAP’s shares may outperform, backed by earnings momentum and multiple expansion.

SAP had established its 2020 guidance in 2015, which was a period of uncertainty. The cautiousness in setting up the guidance and SAP’s impressive execution suggest that the company’s performance would track ahead of targets, the analyst mentioned.

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